Define fair value hedges.

Q: what is an available-for-sale security?

A: Securities are financial instruments that can be traded easily. The entities use these securities to…

Q: Differentiate between price risk and reinvestment risk.

A: Price risk is the risk of decline of the price of the investment or an asset after the underlying…

Q: Explain risk arbitrage

A: It is a venture system to benefit from the narrowing of a hole of the exchanging cost of an…

Q: What is a derivative security?

A: Financial Instruments: It represents assets that are traded in the financial markets and are…

Q: Discuss how diversification reduces firm specific risk.

A: Diversification is investing money in many investments rather than a single investment. In…

Q: Define symmetric hedge

A: Introduction: It is a technique that reduces risk, like currency fluctuations, stock price…

Q: What is the Security Market Line (SML) ?

A: Answer: A security market line (SML) is a line that representing the relationship between systematic…

Q: Explain Prepayment Patterns and Security Prices?

A: The lending process is subjected o interest rates changes which may trigger prepayment of the…

Q: Briefly explain the fundamental trade-off between risk and return.

A: Fundamental trade-off among risk and return: Higher risk is related with larger chance of advanced…

Q: Define within-firm risk

A: Within-firm risk: Corporate (within-firm) risk is a hazard identified with an individual business.…

Q: What is reinvestment rate risk?

A: The reinvestment rate risk is the potential decline in the interest income that tends to be a result…

Q: What is the value of the security market line?

A: Security Market Line: The graphical representation of Capital Asset Pricing Model is known as…

Q: What is the y risk-free investment?

A: Risk-free rate of return is the rate of return that an investor expects from an investment in any…

Q: Define diversifiable risk

A: Diversifiable risk It is special to a given business or industry. Regularly known in the feeling of…

Q: Explain Derivative security?

A: Derivatives security: A derivative security is considered as a financial instrument whose value is…

Q: Define the term Trade-Off between Risk and Reward?

A: Risk-Reward trade off refers to an investment principle which indicates higher the risk, higher is…

Q: What is perfect hedge?

A: Hedge: A hedge is referred as an investment to decrease the risk of opposing price movements in an…

Q: Explain Valuation Fundamentals?

A: Answer: Valuation is nothing but a numerical method in which the true value of an asset or business…

Q: (a.) What is the underlying principle of valuation?(b). Why is it critical for us to learn the…

A:

Q: Briefly describe the fair value hierarchy.

A: Fair value: A value which is determined based on the market situation, business demand, and the…

Q: What is the fair value option?

A: Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So,…

Q: What is market risk?

A: Investments in assets are subject to risks and uncertainty of returns  Risks can be systematic or…

Q: Define asymmetric hedge

A: A strategy that helps to reduce the loss which occurs from the movement of the asset's price is term…

Q: What is a fair value hedge?

A: Fair value hedge: It is a hedging method to manage the risk of changes in the fair value of a…

Q: What is exchange risk, as distinct from exposure?

A: Foreign exchange risk or foreign exchange exposure refers to the financial risk associated with a…

Q: Explain about the Hedging against fair value risk.

A: Financial instrument:   It is a monetary contract between two parties which acts as an evidence of…

Q: Which one of the following is the formula that explains the relationship between the expected return…

A: Beta captures the systematic risk of the security. There exists an important formula in financial…

Q: Explain Comparing Risk Premiums?

A: Risk premium is additional premium an investor achieves by investing in a riskier financial…

Q: (a) Define risk-free asset

A: An asset which generally having certain future returns and there is no chance of loss in return is…

Q: Explain the accounting for hedges.

A: Hedge:   A hedge refers to a financial instrument that are used by investors to offset the potential…

Q: Explain risk premium

A: An investor investing in a risky asset would demand a greater interest rate to compensate for the…

Q: Define risk-free asset?

A: Risk-free means that anything which does not have any kind of risk associated with it. They are free…

Q: what does a perfect hedge mean? when is a hedge perfect?   by ur own word please

A: A perfect hedge is a position taken by an investor that eliminates the risk of an existing position…

Q: (a) Which of X, Y, and Z is a risk-free security when considered on a standalone basis?

A: Portfolio is the collection of securities or investments. The return on portfolio is the weighted…

Q: What is a “natural hedge”? Give some examples of natural hedges.

A: Natural hedge is a risk management method to reduce the risk of investing in financial instruments…

Q: Explain Investor Suitability Standards?

A: Investor suitability standards are standards that are considered as benchmarks set for the investors…

Q: Explain the fair value option.

A: Fair Value Option: It is a process of measuring the financial assets and liabilities using the fair…

Q: what is opportunity risk

A: Opportunity risk is a the risk off loosing a better opportunity i.e. if you have invested in a…

Q: How is VaR used to limit risk?

A: Value at Risk (VaR) a statistical tool which measures and quantifies financial risk a firm or…

Q: what is the risk-free rate (rf)?

A: Risk free rate is also called as treasury bill rate. This treasury bill rates are free from default…

Q: What is natural hedge?

A: Hedging  is a strategy in which financial instruments and strategies are used to reduce the risk.…

Q: Give an example of a risk that is clearly a diversifiable risk and one that is clearly a…

A: It refers to risk that can be eliminated through diversification. Those risks are firm specific,…

Q: How are total risk, market risk, and diversifiable risk related?

A: There are different types of risk associated with the investment. Some can be controlled and some…