TOPIC 3 (exercise 1)

1. _______________ is the uncertainty of a loss caused by an adverse change in the rate at

which one nation’s currency can be converted into another nation’s currency.
2. A ___________________ currency has a higher value relative to a foreign currency.

3. _____________________ is a process of identifying, analyzing and managing the loss

exposures faced by a business entity with appropriate techniques.

4. Buyers face commodity price risk when there is an __________________ in commodity

price.

5.Exporters face currency exchange rate risk when their home currency
is _____________________ because the profit in foreign currency can be exchanged for a
smaller amount of home currency.
6. Futures contracts can be used to ________________ against commodity price risk.

7. The uncertainty concerning the price of grain (input) faced by a food company (Nestle) that
has agreed to deliver cereal (output) at a fixed price to a supermarket chain (Tesco) six months
later is an example of _______________________.

8. Depositors face interest rate risk when interest rate __________________ and this adverse
situation brings about a smaller amount of interest income.

9. ______________________ is the uncertainty of a loss caused by an adverse change in

interest rate.

10. Importers face currency exchange rate risk when their home currency is _______________
because a bigger amount of home currency is needed to purchase the foreign currency.
11. Bond issuers face interest rate risk when market interest rate _____________________

12. ________________________ is a process of identifying, analyzing and managing the

financial risks faced by a business entity with appropriate techniques.

13. ____________________ is an uncertain situation that affects a business entity because of

adverse changes in commodity price, interest rate, currency exchange rate and the value of
money.
14. A _____________________ currency has a lower value relative to a foreign currency.

15. Borrowers face interest rate risk when interest rate ____________________ and this
adverse situation brings about a higher cost of borrowing.

16. Sellers face commodity price risk when there is a __________________ in commodity
price

17. ____________________ is the uncertainty of a loss caused by an adverse change in the

price of a product.
18. Bondholders face interest rate risk when market interest rate __________________
TOPIC 3 (exercise2)

1._________________ is a (comprehensive / holistic) process of managing all the major risks

faced by a business entity with a single unified treatment program.

2. When two risks are perfectly and negatively correlated, the combination of these risks
provides a ___________________ position.

3.If some risks are __________________correlated, the combination of these risks can reduce
the overall risk of the business entity significantly.

4. An __________________ is a treatment program that holistically considers all major risks

faced by a business entity.

5. A _________________ is a person who is responsible for the treatment of pure and

speculative risks faced by a business entity

6. MAS spends millions each year on jet fuel. The airline also has a significant liability loss
exposure. It can retain a large portion of liability loss exposure if the fuel cost is low, or it can
pay high fuel cost if its retained liability loss is low. The airline cannot, however, absorb both
high fuel cost and high liability loss. MAS’s insurer designed an insurance program with
a ____________________ where the insurer will pay only if both contingencies (high fuel cost
and high liability loss) occur.
7. Risk mapping and catastrophe modelling are risk _________________tools.
8.A _____________________ provides for the payment only if two specified losses occur.
9. An __________________ is a treatment program that combines the coverage for pure and
speculative risks in the same contract.

10. As long as all risks are not perfectly and __________________ correlated, the combination
of these risks can reduce the overall risk of the business entity.