List - I List - II (Type of Risk) (Uncertainty of Future Returns) (A) Financial Risk (I) Investor Psychology (B) Market Risk (II) Capital Market (C) Purchasing Power Risk (III) Financial Capacity (D) Political and Social Risk (IV) Price Level
Choose the correct answer from the options given below :
Solution: Matching Financial Risks with Their Definitions
The question requires matching specific types of financial risks listed in List I with their corresponding descriptions or influencing factors in List II.
Matching List I and List II
The correct pairings derived from the options are:
| List I (Type of Risk) | List II (Description/Source) |
|---|---|
| (A) Financial Risk | (III) Financial Capacity |
| (B) Market Risk | (I) Investor Psychology |
| (C) Purchasing Power Risk | (IV) Price Level |
| (D) Political and Social Risk | (II) Capital Market |
Explanation of Matches
- Financial Risk (A) & Financial Capacity (III): Financial risk relates directly to a company's financial structure, particularly its level of debt and its overall financial capacity to meet obligations.
- Market Risk (B) & Investor Psychology (I): Market risk, often influenced by broad economic factors, can also be significantly swayed by collective investor psychology, sentiment, and behavior affecting market prices.
- Purchasing Power Risk (C) & Price Level (IV): This risk, also known as inflation risk, concerns the potential loss of purchasing power due to rising price levels, eroding the real value of investments and returns.
- Political and Social Risk (D) & Capital Market (II): Political instability, policy changes, or social unrest can create uncertainty and volatility within the capital market, impacting investment values.
Important Questions from Business Finance
Match List I with List II
List I
List II
Option strategies
Description(s)
A.
Protective put
I.
Buying an asset along with a put on it
B.
Covered call
II.
Buying a call as well as put options on an asset at the same exercise price
C.
Long straddle
III.
Combining two or more options on the same asset with differing exercise prices or times to maturity
D.
Spread
IV.
Writing a call position on an asset along with buying the asset
Choose the correct answer from the options given below:
In order to shorten its operating cycle, a manufacturing company focuses on which of the following decisions ?
A. Reducing operating expenses
B. Enhanced coordination of firm activities
C. Manufacturing automation
D. Longer production schedule
E. Tightening credit policy
Choose the correct answer from the options given below:
Match List I with List II:
List I
List II
A.
Margin of Safety I.
Profit × sales/PV Ratio B.
Break Even Point II.
Difference between total revenue and total variable costs C.
P V Ratio III.
Total Sales-Total Variable Cost / Total Sales D.
Contribution IV.
Equality between contribution and total fixed costs.
Choose the correct answer from the options given below:Identify the components of the credit policy of a business firm from the following:
A. Collection policy
B. Factoring
C. Credit rating
D. Credit analysis
E. Terms of sale
Choose the correct answer from the options given below:
A new issue debt or shares will invariably involve floatation costs in the form of:
(A) Legal fees
(B) Administrative expenses
(C) Brokerage
(D) Underwriting
(E) Risk premium
Choose the most appropriate answer from the options given below:
