Question

Using scenario analysis, a nickel mine finds that its revenue increases as the market price of...

Using scenario analysis, a nickel mine finds that its revenue increases as the market price of nickel increases despite a fall in customer sales due to higher prices. Which of the following best describes the financial risk exposure of the company?
Select one:
a. The company has a long economic exposure to nickel prices.
b. The company has a neutral economic exposure to nickel prices.
c. The company has a short economic exposure to its customers.
d. The company has a short economic exposure to nickel prices.

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Answer #1

The Company has less customer base. However, it will increase the revenue through charging high premium to less customers irrespective of fall in customer base. But, in the long run if the nickel prices falls then the company must suffer the loss because it does not have the enough customer base to pick up their revenue forward. Therefore, the company has long economic exposure to nickel prices.

Therefore, option A is considered as optimum i.e The Company has a long economic exposure to nickel prices.

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