11. What types of Commodity Trading Firms (CTFs) are best able to \"self hedge\"
ID: 2801012 • Letter: 1
Question
11. What types of Commodity Trading Firms (CTFs) are best able to "self hedge"? a. Horizontally integrated firms b. Small firms who specialize in one product c. Firms with high marginal costs d. Vertically integrated firms 12. What is required to implement a VaR strategy? a. a choice of a probability level and a time horizon b. a perfect knowledge of future prices c. an exact model of future market risk d. an exact model of basis prices 13. Placing trading limits on a trader is an example of what type of internal control? a. Segregation of Dutics b. Approvals, Authorizations, and Verifications Contract Confirmation d. Control Queries -14. What is Value at Risk (VaR)? b. risk of clearinghouse default c. risk of counterparty funding d the amount of money that can be lost over a given time horizon with a given probability Which area of a trading firm would be in charge of the controls of weekly funding forecasting, stress funding analysis, and stress funding contingency planning? A. Settlement B. Liquidity Management C. Financial Reporting. D. B and C only E. All of the above 15.Explanation / Answer
11) Horizontally integrated firms with different products will have a diversified products which will be alble to create a self hedge
b is not correct because it will have one products which can be very risky
c Marginal cost will lead to high risk
d Vertically integrated firms will focus on a singular product
12)VaR is the maximum loss over a given period for a given probability.
Hence a is the correct option
b is wrong because future prices will hedge and there will be no risk required
c is wrong for same reason as b
d is wrong because VaR also requires probability
13) a is not correct because Duty segregation is a different role than trading limits
b is the correct option
c Contract confirmation is internal control related to quality
d is wrong because control queries area different aspect than trading limits
hence option a is correct
14) VaR is maximum loss in a time period for a given probbaility
Hence option d is most correct
a is credit risk
b is is very rare risk however it can happen
c is no risk related to a firm
15)
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