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.
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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