Market Analysis & Financial Reporting Flashcards
7 cards from real ERAC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Market Analysis & Financial Reporting flashcards as text
Which regulatory framework primarily governs financial reporting disclosures for publicly traded US energy companies regarding commodity price risk?
Answer: SEC Regulation S-K Item 305
SEC Regulation S-K Item 305 requires quantitative and qualitative disclosures about market risk, including commodity price risk, for public companies.
A 'contango' market structure in crude oil futures implies which of the following for a storage operator?
Answer: Profitable cash-and-carry arbitrage opportunity
In contango, future prices exceed spot prices, so a storage operator can buy spot, store the commodity, and sell forward at a higher price, creating a cash-and-carry profit if storage costs are covered.
When auditing an energy trading desk, which of the following would be MOST concerning regarding value-at-risk (VaR) model reliability?
Answer: Back-testing shows exceptions far exceed the expected frequency
Excessive back-testing exceptions indicate the VaR model underestimates actual risk, meaning the model's confidence intervals are not reliable.
The 'dark spread' in electricity market analysis measures the profit margin for which type of generating unit?
Answer: Coal-fired power plant
The dark spread is the power price minus the cost of coal needed to produce that electricity, representing the gross margin for coal-fired generation.
Which accounting method allows energy companies to defer recognition of unrealized gains and losses on qualifying cash flow hedges?
Answer: Cash flow hedge accounting under ASC 815
Under cash flow hedge accounting (ASC 815), the effective portion of changes in fair value is recorded in other comprehensive income (OCI) and reclassified to earnings when the hedged transaction affects income.
An energy risk auditor reviews a pipeline company's revenue reports and finds significant 'imbalance' charges. These charges most directly relate to:
Answer: Differences between scheduled and actual gas volumes delivered
Gas pipeline imbalances occur when actual deliveries differ from scheduled nominations, resulting in imbalance charges or penalties per tariff agreements.
In analyzing an energy firm's financial statements, 'net open position' most directly represents:
Answer: Unhedged commodity price exposure remaining after hedging activity
Net open position is the residual commodity exposure not covered by hedges, representing the firm's unprotected price risk.