Exchange rate risk is irrelevant because investors can hedge exchange rate risk on their own. Comment on this preposition.

How does the efficient frontier change if we add the risk free asset into theportfolio of risky assets? Explain both the cases when borrowing at the riskfree is allowed and when it is not. Support your explanations with a graph.

Derivatives are used in risk management because they _____.a. diversify risksb. hedge risksc. avoid risksd. none of the above

Hedgers should buy calls if they are hedging an expected outflow of foreign currency.   True or False ? Explain.

What kind of interest rate swap would a commercial bank with a negative re - pricing gap (that is, rate sensitive assets is less than rate sensitive liabilities) utilize to hedge rate risk exposure (that is, would the commercial bank enter into an interest rate swap to make floating rate payments and receive fixed rate payments)? Explain