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State Insurance Licensing Exam — free MCQ practice

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State Insurance Licensing Exam subjects

Finance (30)

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FinanceInsurance LicensingRisk Management and Hedging

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A reduction in the risk or exposure a firm has to volatility is called a:Read the answer and worked solution →The basic reason firms hedge is to protect themselves against:Read the answer and worked solution →Signing a multi year supply agreement to fix input prices is hedging with a:Read the answer and worked solution →A coffee chain buying its own coffee farm to control input cost is practising:Read the answer and worked solution →

Worked practice questions

A reduction in the risk or exposure a firm has to volatility is called a:

  1. Hedge
  2. Hurdle
  3. Holder
  4. Header
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Correct answer: A. Hedge

1. The firm wants less uncertainty, not more. 2. Any step that cuts exposure counts. 3. That step is a hedge. _Source: OpenStax Principles of Finance, Chapter 20, Risk Management and the Financial Manager._

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The basic reason firms hedge is to protect themselves against:

  1. Listings
  2. Losses
  3. Lenders
  4. Licences
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Correct answer: B. Losses

1. Prices and rates can move against a business. 2. Hedging limits the damage when they do. 3. So firms hedge against losses. _Source: OpenStax Principles of Finance, Chapter 20, Risk Management and the Financial Manager._

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Signing a multi year supply agreement to fix input prices is hedging with a:

  1. Long term contract
  2. Long term deposit
  3. Long term dividend
  4. Long term discount
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Correct answer: A. Long term contract

1. Both sides agree a price in advance. 2. Buyer and seller each escape price swings. 3. That tool is a long term contract. _Source: OpenStax Principles of Finance, Chapter 20, Risk Management and the Financial Manager._

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