The Risk That the Firm Will Not Have,or Be Able

question 12

Multiple Choice

The risk that the firm will not have,or be able to raise,the cash required to meet the margin calls on its hedges is called:

• A)liquidity risk.
• B)basis risk.
• C)commodity price risk.
• D)speculation risk.

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Definitions:

Incremental Cash Flow

The additional cash flow from a company's activities or projects, specifically distinguishing between the cash flows with and without the project.

Taxes

Compulsory financial charges or levies imposed by a government on individuals and organizations to fund public expenditures.

Erosion

The portion of cash flows of a new project that come at the expense of a firm’s existing operations.

Incremental

Refers to the additional changes in costs or revenues that result from a business decision.