The Risk Cause by Changes in Inflation That Affect Revenues

question 141

Multiple Choice

The risk cause by changes in inflation that affect revenues, expenses and profitability is called:

• A)interest rate risk
• B)business risk
• C)purchasing power risk
• D)financial risk
• E)none of the above

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Definitions:

Hedge

Hedging involves making an investment to reduce the risk of adverse price movements in an asset, typically by taking an offsetting position in a related security.

Put Option

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Interest Rate

The percentage of a sum of money charged for its use, often expressed on an annual basis.

Financial Risk Management

The practice of protecting economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk.