Which of the Following Strategies Does Not Reduce Risk

question 54

Multiple Choice

Which of the following strategies does not reduce risk?

• A) building flexibility into the firm's operations
• B) increasing the proportion of the firm's costs that are fixed
• C) taking out an insurance policy
• D) hedging with derivative contracts

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Definitions:

Market Rate

The prevailing interest rate available in the marketplace for instruments of similar risk and maturity.

Coupon Bonds

Bonds that pay the holder a fixed interest rate (the coupon) over the bond's life, culminating in the repayment of the principal amount at maturity.

Interest Coupons

Certificates attached to bond certificates that represent the interest due on a payment date to the bondholder.

Bondholders

Individuals or entities that hold bonds issued by corporations or governments, entitled to receive interest payments and the return of principal.