qingshu

 

2、The variability of revenues of an online bookseller is best described as:

A) credit risk.

B) business risk.

C) seasonal risk.

D) active risk.

qingshu

 

The correct answer is B

Business risk is the variability of revenues depending on the type of business the firm operates in. Credit risk is the risk of default or widening of spreads. Active risk is the tracking error risk (with respect to a benchmark) for an active portfolio manager. There is no such thing as seasonal risk.

qingshu

 

2、Strategic capital allocation is defined as:

A) the method for maximizing market value added.

B) the quintessential application of bottom-up analysis.

C) None of the above.

D) the assigning of return objectives to the business units of a bank. 

qingshu

 

The correct answer is D

The assigning of return objectives to the business units of a bank is the general philosophy behind strategic capital allocation.

qingshu

 

The correct answer is A

Strategic capital allocation involves assigning return objectives to the business units of a bank to determine the optimal economic capital to those individual business units. This would not include examining the firm’s strategic opportunities in its industry.