What is meant by the phrase natural hedging againstexchange rate risk?

Q: List which of the following statement(s) concerning risk are correct? I. Nondiversifiable risk is…

A: Risk is a factor which arises due to uncertain future factors. It can be generated through external…

Q: Explain the difference between systematic and unsystematic risk. Also explain why one of these types…

A: Financial markets are full of financial risks because these markets are related to the trade of…

Q: Explain the types of risk?

A: Introduction: There is a risk involved in any company decision, and in personal life decisions. In…

Q: Define default risk

A: Default risk: It is the threat or risk of a bank taking on the plausibility that a borrower will not…

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: Define Risk aversion

A: A risk averse saver is an investor who favors inferior returns with recognized risks somewhat than…

Q: What is the significance of the Value at Risk (VaR) method?

A: The question is based on the concept of Value at Risk (VaR). VaR is a statistical measure of risk in…

Q: Define market risk

A: Market risk is the risk of an investment due to over all volatility in the market returns due to…

Q: What is risk? What is the difference between systematic and unsystematic risk?

A: Risk: Risk can be defined as upcoming uncertainty about variation from anticipated earnings or…

Q: What Does RiskReally Mean?

A: Risk: Risk can be defined as upcoming uncertainty about variation from anticipated earnings or…

Q: Can the risk premium be negative after an investment is undertaken or before?

A: The risk premium is the extra risk-free return to require the risk of project acknowledgment. This…

Q: What is the risk free return?

A: Rate of return is the return percentage which an investor gets from the money which has been…

Q: Why is the additional risk not taken without expected additional return?

A: The risk-return tradeoff takes note of that the potential return increments with an expansion in…

Q: what does Market's Risk premium measure

A: Market's Risk premium is an important term used in the capital asset pricing model equation (CAPM)…

Q: Explain the difference between a linear risk and a nonlinear risk.

A: Linear risk is an enterprise's risk, based on the traditional economic system of "take-up-dispose."…

Q: What makes the risk-adjusted discount rate approach appealing?

A: Answer: The approximation of the present cash value for high risk assets is called adjusted discount…

Q: What security provides a good estimate of the real risk-free rate?

A: A Treasury bill (T-Bill) is the short-term liability of US public debt supported for 1 year or…

Q: Basic Elements of Risk-Adjusted Returns?

A: Introduction: Risk adjusted return is a methodology for calculating and evaluating the returns on an…

Q: What is the difference between systematic risk and unsystematic risk? Give an example of each.

A: Risk: The possibility that the actual outcome in a situation will differ from the expected outcome…

Q: What is risk return ratio?

A: Any susceptibility a corporation or organization has to factors that might affect profitability or…

Q: Explain the Trade-Off between Risk and Reward?

A: The trade-off means to lose one thing to achieve another thing. For example An organization is…

Q: Market risk is referred to as: systematic risk. total risk. diversifiable risk. asset specific…

A: Market risk is the type of risk that affects the whole market. Market risk is not specific to a…

Q: How are total risk, nondiversifiable risk, and diversifiable risk related? Why is nondiversifiable…

A: Total risk is measured by the standard deviation of returns; it has two elements non-diversifiable…

Q: How the risk and return trade-off can be applied in real life?

A: The risk-return tradeoff states that the return rises with an increase in risk. Investors use this…

Q: What makes the risk-adjusted discount rate approach appealing in practical application?

A: Answer: The discount rate may be changed to offset the risk involved in a project in order to…

Q: Calculate the risk neutral probability

A: Risk neutral probability = (er*Δt - d)/(u-d) r is risk free rate. Δt is time period between each…

Q: Why is the default F risk in a CMBS offering given more attention?

A: A default risk is the likelihood that the guarantor of a bond won't have the option to reimburse the…

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: Define the term Risk-Adjusted Discount Rate Approach?

A: The estimation of the present value of cash for high-risk investment is known as a risk-adjusted…

Q: Discuss the Beta of  as measure of systematic risk.

A: In finance systematic risk refers to that risk which is inherent to the entire market. As the risk…

Q: Define the term risk?

A: Types of risk: Investment risk Market risk Inflation risk Business risk Liquidity risk

Q: Explain risk premium

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

Q: Explain risk aversion

A: Introduction: Risk can be characterized in terms of the uncertainty of future consequences resulting…

Q: What risk does Beta measure?

A: There are two types of risks: 1) Systematic risk 2) Unsystematic risk 1. Systematic risk : It is…

Q: Why is it important to be able to quantify risk?

A: Risk is the chance that an outcome of an investment's actual gain will differ from an expected…

Q: Compare speculative risk and pure risk.

A: Pure Risk is the possibility where there is loss or no loss. Speculative risk  is a possibility of…

Q: What is value at risk, VaR?

A: Value at Risk (VaR) is a financial metric that estimates the risk of an investment. More…

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: What is the difference between Beta and Standard Deviation as a measure of risk?

A: Risk can be divided into two categories- unsystematic risk and systematic risk. Risk is measured in…

Q: Which of the following Incoterms (EXW, FCA, DPU, DAP) are in favor of the buyer in terms of risk?…

A: FOLLOWING INCOTERMS- EXW -EX WORKS FCA-FREE CARRIER DPU-DELIVERED AT PLACE UNLOADED DAP-DELIVERED AT…

Q: what does high value of standard deviation mean on risk-return ratio

A: Risk-return ratio is the ratio which shows the risk which an investor will get for having one unit…

Cost of Capital

Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.

Capital Structure

Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.

Weighted Average Cost of Capital

The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.