FIN 320 Module 6

Balance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative capital equity.  For a Financial Institution, Insolvency Risk can be defined as the risk that there is insufficient capital to offset either a decrease in the market value of assets relative to liabilities or an increase in liabilities relative to the market value of assets.         A. Describe a situation where Insolvency Risk could be caused one of the many risks that a Financial Institution may face. B. Describe the best protection against insolvency risk at a Financial Institution.

Explain what is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become riskier.

What is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become more risky.

Since risks, such as credit, liquidity, default, technological, and legal risks, among others, may affect the financial operations of the business or organizations. Laws are created to enfore financial regulations. In financial markets, these laws, rules and regulations control the following drivers: competitiveness, market behavior, consistency and stability.   Stability. Market Stability is important. Given that market behavior is dependent on a lot of factors, the risk is very high., Most of the players failed to survive because their ability to forecast and to mitigate the market risk. In the financial market, the impact of financial risk is something that the regulatory environment should consider. The regulation must be able to protect the interest of the clients as well as the companies to enable their corporate sustainability.   QUESTION: Explain further what "stability" means. How do laws control stability in financial markets? Explain. Then identify the risks that arise from…

Which of the following is NOT related to (or contributes to) business risk? Remember that a company's activities have an effect on its business risk. Sales price variability. The extent to which operating costs are fixed. Demand variability. O Input price variability. O The extent to which interest rates on the firm's debt fluctuate.

Recession, inflation, and high interest rates are economic events that are best characterized as being a. company-specific risk factors that can be diversified away. b. among the factors that are responsible for market risk. c. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. d. irrelevant except to governmental authorities like the Federal Reserve. e. systematic risk factors that can be diversified away.

Business risk is  A) the risk of bad business strategy or management decisions being madeB) the risk that a company will be unable to meet its financial obligationsC) the risk of not being able to close out your position quickly and at a fair priceD) the risk of prices going up or downE)  also known as inflation risk

Liquidity risk is A) the risk of bad business strategy or management decisions being madeB) the risk that a company will be unable to meet its financial obligationsC) the risk of not being able to close out your position quickly and at a fair priceD) the risk of prices going up or downE)  also known as inflation risk

TRUE OR FALSE Financial sector creates products for the management of risk, thus risk can be abolished fully.

What are some of the risks an investor would face when investing in a stock? In addition to the business risk coming from the type of business environment that your company operates in, what additional risk would be of concern to an investor? The company might be mismanaged and do poorly or go out of business. The company's stock market return might be wildly unpredictable as the operating performance might be unstable. The company's competitors might do a better job and take market share away? The list goes on and on... What risks would you face if you bought 100 shares of Tesla?

1- FinTech firms are facing increased regulatory oversight. A risk event at a FinTech firm can result in losses that are substantially more damaging than at traditional financial institutions.   True   False   2- Credit risk and interest rate risk cannot affect insolvency risk.   True   False

What are the possible actions that a firm can take if it experiences a financial failure?

match the correct description with the correct term. Descriptions Terms The level and nature of risk attributable to a firm’s activities and operations, and ignoring the risks associated with the firm’s capital structure. Asymmetric information    The situation in which outsiders, such as external shareholders, credits, suppliers, and customers have less and inferior information about a firm’s past, current, and future conditions and prospects, compared to the firm’s managers. Business risk    The extent to which a firm’s cost structure contains a large proportion of fixed costs, which raises its level of business risk if the firm’s sales decline. Capital structure    This practice of employing a large proportion of fixed-cost sources of financing, such as debt securities and preferred stock, exposes a firm’s stockholders to more business risk. EPS indifference point    The ability of a firm to borrow money at a reasonable cost when good investment opportunities arise…

1. Refers to the inability of the business to meet its obligations as they mature on account of insufficient resources. A. Default risk B. Interest-rate risk C. Purchasing power risk D. Liquidity risk   2. A type of risk that relates to changes in the prime interest rate which have significant effects on the cost of money but not directly on the liquidity of the business. A. Financial risk B. Interest-rate risk C. Purchasing power risk D. Liquidity risk   3. Refers to the changes in the conditions and those variables affecting the cost of capital, capital structure and also management decisions made to directly influence the market price of a stock. A. Financial risk B. Interest-rate risk C. Purchasing power risk D. Liquidity risk

Financial risk is:   Multiple Choice   irrelevant to the value of a company.   inversely related to the cost of equity.   a type of unsystematic risk.   the risk inherent in a company’s operations.   dependent upon a company’s capital structure.

If you are in financial hardship, explain what it means. If we suppose that financial hardship occurs, explain how and why financial distress would make a company's stock more hazardous.

critically discuss why financial markets should be regulated in terms of  asymmetric information, moral hazard and adverse selection

Making references to asymmetric information, moral hazard and adverse selection, critically discuss why financial markets should be regulated

Why Ethics matter in the financial investment industry and how to avoid ethical violence in finance

Which of the following is not an example of a mitigating factor that reduces the risk that the going concern assumption may be in doubt? a. The ability to raise additional funds via borrowings b. A letter of guarantee from a parent company c. The ability to sell an unprofitable segment of the business d. Significant rapid increase in competition

accounting answer need