What are the sources of UGGs revenues and costs and how are they related to their risks?

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

1. What are the sources of UGGs revenues and costs and how are they related to their risks?

2. Why should UGG worry about these risks if Owners can diversify away from these risks? Owners can just purchase a well-diversified portfolio to avoid these risks can they not?

3. Do you think an insurer would be more willing to write a contract with UGG that pays UGG if the firm's grain handling division profits are below a certain level or a contract that pays them money if Canadian grain volumes are below a certain level? Why?

4. How important is weather risk to the firm relative to other risks? How would you go about assessing the effect of weather risk on the firm? What affects grain volume?

5. The ideal contract here is a profit protection contract. Why won’t an insurer sell UGG a contract that says, pay us a premium of x and we will pay you if the difference between your expected profit and what you actually receive in profit?

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