Risk and Insurance in International Trade-1


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Assignment A


Q1: Briefly explain what is risk. Also enumerate different types of risks and ways of assessing risk.


Q2: Explain the meaning and importance of marine insurance. Briefly discuss various documents required for insurance.


Q3: Explain Country Risks and Interest Rate Risks. Enumerate measures to manage Interest Rate Risks.


Q4: Give a brief overview of International Payment Methods. What do you understand by Bill of Lading and Bill of Exchange?


Q5: What is the scope of coverage of Transport Insurance? How is transport risk managed?



Assignment B

The Case of the Never Ending Scope Creep


In 1999, the XY Department of the Federal Government reviewed its Year 2000 Date Turnover Computer Risks and found that its outdated computer systems for managing public clients needed replacing. A business case was prepared for funding the replacement while at the same time implementing some improvements. The total budget requested was $2.3 million.

In view of a shortage of funds around at the time, government did not approve this amount. Only $1.5 million was authorized. However, the XY Department accepted this amount after they decided that they could maybe do the work for around the $1.5 m.

Accordingly, a project was scoped and planned, with specific milestones for implementing the hardware and, subsequently the software, across 87 sites within its jurisdiction. A final completion date of 30th June 2001 was projected. The original business case had loosely identified some risks to the project that were also included in the project plan. A project steering committee was established, with the department chief (CEO) as the sponsor, and representation by influential managers with differing outcome needs to suit their particular work environment. The project commenced in July 1999.

In view of the shortfall on its original budget request, the committee decided not to employ a project manager. Instead it assigned this responsibility to its Finance Manager, who would undertake the work along with his normal duties.

A Company, called “Good Programs” was contracted to supply the software and assist in the implementation. This company recognized the marketing opportunities of this project, as the XY Department was its biggest client in the region. As a result, they offered, free of charge, many more features that were not in the original scope, provided the department allowed them to be, in essence a research and development (R&D) site. This would assist Good Programs to more readily sell their products elsewhere around the world, while providing the XY Department with additional functionality and benefits.

Initially, the steering committee met regularly, but as new versions of the resulting software were being implemented regularly, meetings became less frequent and Good Programs were left to do more and more of the day to day management of the new version implementations.

These new versions were developed after consultation with the various individual managers to accommodate requested new features with little consultation amongst all of the managers. All the XY Department and steering committee had to do was to identify problems with the software and to make the system testers available for new versions. However, the effect was an unanticipated overhead for the department.

Sometime after the original project was scoped and commenced, both the original CEO and finance manager had been moved out of the department and new officers have been appointed.

At this time, the new CEO has been advised that about $185,000 more is needed for the project, which is not in his current budget. The original project has not been signed off, indeed, it is evident that it has not been completed. The new CEO of the department is not sure of the original scope of the project, what aspects have been implemented, nor what has been spent for which parts. There do not seem to be any reliable reports available as to original scope, scope changes, schedule or budget.

The CEO is concerned that the project has become more of a career than a project, with version 16.5 of the client management system now being tested with yet more features. In addition, there are some past software problems that are still outstanding. Nevertheless, Good Systems have promised that problems will be fixed in the next version … .

You are a senior consultant with PM Right Track (PMRT), a competent project management consulting company. The CEO has called you in for advice. The information is brief, but this is all the information that he and the new finance manager are able to provide. The CEO’s mandate to you is to:

  1. Report and Compare your assessment of the current project status.
  2. Recommend improvements to the XY Department’s future project management practices.
  3. If a very similar project had to be done again, what attributes and/or skill sets would you recommend in selecting a project manager?


Assignment C


1. Suppose the project has many hazards that could easily injure one or more persons and there is no method of avoiding the potential for damages. The project manager should consider __________ as a means of deflecting the risk.

a) abandoning the project

b) buying insurance for personal bodily injury

c) establishing a contingency fund

d) establishing a management reserve

e) not acknowledging the potential for injury


2. Risk Management includes all of the following processes except:

a) Risk Monitoring and Control

b) Risk Identification

c) Risk Avoidance

d) Risk Response Planning

e) Risk Management Planning


3. When should a risk be avoided?

a) When the risk event has a low probability of occurrence and low impact

b) When the risk event is unacceptable — generally one with a very high probability of occurrence and high impact

c) When it can be transferred by purchasing insurance

d) A risk event can never be avoided


4. All of the following are financial risks which may be faced by business organizations EXCEPT

a) interest rate risk.

b) commodity price risk.

c) product liability risk.

d) currency exchange rate risk.


5. Which of the following is not an example of personal risk?

a) Earning risk

b) Medical expenses

c) Longevity risk

d) Worker Injury


6. _____________ risk refers to uncertainty over total of cash flows due to possible changes in output and input prices.

a) Personal

b) Pure

c) Price

d) Credit

7. Which of the following is not an object of risk management?

a) Identify all potential risks.

b) Identify high-impact/high priority risks.

c) Document risk identification and analysis process.

d) Assume risk


8. All of the following are disadvantages of using insurance EXCEPT

a) There is an opportunity cost because premiums must be paid in advance.

b) Considerable time and effort must be spent selecting and negotiating coverages.

c) It results in considerable fluctuations in earnings after a loss occurs.

d) Attitudes toward loss control may become lax.


9. Which of the following types of loss exposures are best met by the use of avoidance?

a) low-frequency, low-severity

b) low-frequency, high-severity

c) high-frequency, low-severity

d) high-frequency, high-severity


10. What is the methods of handling risk ?

a) avoidance

b) loss control

c) retention

d) noninsurance transfers

e) insurance


11. Which of the following is not part of risk management process?

a) identify and evaluate frequency and severity of losses

b) choosing and implementing risk management methods

c) Shelving a business plan due to high risk

d) monitoring the performance and suitability of the methods.


12. Risk avoidance means:

a) Measures are taken to eliminate loss exposure

b) Measures are taken to reduce loss severity

c) Insurance has been purchased and risk transferred to an insurance company

d) Is not a useful risk management tool.


13. Business firms face liability lawsuits when their :

a) Products injure consumers

b) Customers steal their inventory

c) Unions go on strike

d) Attorney fails to file legal document


14. The principle of indemnity provides that

a) Insurance premium rates must be neither too high nor too low

b) The insured should be paid for the loss he or she suffered and no more no less

c) The insured shall be paid exactly the face amount of the policy

d) People who cause accidents should pay for the loss that results

e) Only indemnity companies may issue contracts of indemnity


15. Principle of Insurable interest refers to

a) All facts should be disclosed to insurer

b) The amount of interest to be paid by the insurer

c) No person can enter into a valid contract of insurance unless he has insurable interest in the object

d) None of the above


16. Institute cargo Clause C covers loss of or damage to the goods caused by

a) Fire or explosion

b) Theft, pilferage and non-delivery

c) Fresh and/or rain and/or river water damage.

d) Hook, oil, mud, acid and damage by other cargo.


17. Which policy covers all risks of loss of or damage to the goods insured and is the widest cover

a) Institute Cargo Clause A

b) Institute Cargo Clause B

c) Institute Cargo Clause C

d) War and Strikes, Riots and Civil Commotion (SRCC) Clause


18. Principle of Causa Proxima implies that

a) the insurer becomes liable to pay for loss if the insured peril or risk is the proximate cause of loss

b) the contracts of insurance only indemnify a loss resulting from risk covered under the Policy

c) the insurer becomes liable to pay for loss if the insured peril or risk is the exact cause of loss

d) the insurer becomes liable to pay for loss irrespective of the cause of loss


19. Maritime perils are cause due to

a) faults in loading, keeping, carrying and unloading of the cargo

b) acts of God or man made events

c) war including civil war, revolution, rebellion etc.

d) strikes, lock-outs, labour disturbances, riots, civil commotion


20. Which document sets out all the terms and conditions of the contract between the insurer and the insured

a) Certificate of Insurance

b) Insurance Broker’s Note

c) Insurance Policy

d) None of the above


21. A country that analyzes the probability of: (1) an uprising, (2) the election of a socialist nationalizing government, and (3) the stability of per capita income, is engaging in:

a) factor risk analysis.

b) political situation analysis.

c) country risk analysis.

d) consumer purchasing power analysis.


22. Which of the following statements is true?

a) A tax increase is never the result of political forces and can therefore not be considered a political risk.

b) Political risk is confined to third world countries.

c) One form of political risk is government measures to improve the competitiveness of national companies.

d) All of the above.


23. Which of the following statements is true?

a) Expropriation of assets by communist governments is a form of micro political risk.

b) In 2004, government X, which had been providing preferential treatment to countries in the A region, provided equal opportunities to manufacturers across the world. This is a case of micro-political risk.

c) In 2006, the producers of widgets in Germany lobbied their government to impose tariffs on imports of widgets. This is a case of macro political risk.

d) All of the above


24. Which of the following is not a factor that an MNE must be acquainted with when dealing with a foreign government?

a) Their culture.

b) Their policy objectives.

c) Their levers of power.

d) None of the above.


25. Which of the following is a Berlin-based organization that produces reports on corruption each year?

a) The Business Ethics Bureau.

b) Transparency International.

c) Corruption Watchdog.

d) Corruption Monitor.


26. World Banks’ subsidiary that guarantees against non-commercial risks is


b) IDA


d) IFC


27. Which of the following is a ECA in Africa?

a) African Export-Import Bank

b) Arab Investment & Export Credit Guarantee Corporation

c) Corporación Andina de Fomento

d) European Bank for Reconstruction and Development


28. Credit Insurance is beneficial to the exporter as it facilitates:

a) Effective management of interest rate fluctuations

b) Offering more competitive credit terms to new customers.

c) Effective management of foreign currency fluctuations

d) Offering more competitive credit terms to banks


29. Which of the following tool will not help a company in minimizing its bad debt

a) Confirmed LC

b) debt purchase

c) credit insurance.

d) Hedging


30. In case of undisclosed factoring

a) client’s customers are not notified of the factoring arrangement.

b) client’s customers are notified of the factoring arrangement.

c) client is notified of the factoring arrangement.

d) Client is not customers are not notified of the factoring arrangement.


31. Purchasing of an exporter’s receivables at a discount price by paying cash is known as

a) Factoring

b) Forfeiting

c) Hedging

d) Arbitration


32. Forfeiting is beneficial to banks because :

a) Lower credit administration and credit follow up

b) It helps in maintaining liquidity

c) It helps bank to offer competitive interest rates

d) Increases assets base


33. Which of the following is not characteristic of factoring

a) Factoring is possible in case of bad debts.

b) Credit rating is mandatory.

c) It is a method of offbalance sheet financing.

d) Cost of factoring is never equal


34. In case of Forfeiting exporter has to bear the following cost :

a) Commitment fee

b) Interest

c) Commission

d) Dividends


35. Liquidity risk pertains to timing mismatches between cash inflows and outflows is known as

a) gap risk

b) Commercial risk

c) Personal risk

d) Business Risk


36. In Gap Analysis If the difference between the assets and liabilities which mature or are re-priced during that interval is positive

e) there will be a net cash deficit

f) there will be no change in net cash

g) there will be a net cash surplus

h) None of the above


37. A combination of interest rate puts is referred to as an

a) interest rate cap

b) interest rate floor

c) Call

d) Put


38. LIBOR stands for

a) Liberal Interbank Offered Rate

b) London Interbank Offered Rate

c) Liberal Interbank Offered Ratio

d) Liberal Interbank Official Rate


39. Put option is considered the mirror image of a

a) call option

b) floor

c) cap

d) Collar


40. In plain vanilla swap

a) one party paying a fixed interest rate and receiving a floating rate and the other party paying a floating rate and receiving a fixed rate.

b) one party pays and receives a fixed interest rate and the other party paying a floating rate and receiving a fixed rate

c) Both parties pay and receive fixed interest rate

d) Both parties pay and receive floating interest rate



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