INTRODUCTION TO RISK MANAGEMENT
INTRODUCTION TO RISK MANAGEMENT EXAM QUESTIONS AND
ANSWERS GUARANTEED SUCCESS.
What is risk management? ANS >> The risk management process seeks to:
1) Identify the risk tolerance of the organization
2) Identify and measure the risks that the organization faces
3) Modify and monitor these risks
The process does not seek to minimize or eliminate all of these risks.
What are the (7) activities a part of the risk management framework? ANS >> 1. Establishing processes
and policies for risk governance
2. Determining the organization's risk tolerance
3. Identifying and measuring existing risks
4. Managing and mitigating risks to achieve the optimal bundle of risks
5. Monitoring risk exposures over time
6. Communicating across the organization
7. Performing strategic risk analysis
What is risk governance? ANS >> This refers to senior management's determination of:
1) the risk tolerance of the organization
2) the elements of its optimal risk exposure strategy
3) the framework for oversight of the risk management function.
, INTRODUCTION TO RISK MANAGEMENT
What is the purpose of a risk management committee? ANS >> A risk management committee can
provide a way for various parts of the organization to bring up issues involving risk measurement,
integration of risks and the best way to mitigate undesirable risks.
How does an organization determine their level of risk tolerance? ANS >> Determining an
organization's risk tolerance involves identifying the risks that the firm can take and the risks that the
firm should avoid or reduce.
(5) factors that affect the determination of risk tolerance includes:
1. Expertise in its lines of business
2. Skill at responding to negative outside events
3. Regulatory environment
4. Financial strength
5. Ability to withstand losses
What is risk budgeting? ANS >> This is the process of allocating a firm's resources to assets (or
investments) by considering their various risk characteristics and how they combine to meet the
organization's risk tolerance.
The goal of risk budgeting is to allocate the overall amount of acceptable risk to the mix of assets or
investments that have the greatest expected returns over time.
How can a risk budget be represented? ANS >> A risk budget can be a single metric, like a portfolio
beta, value at risk, portfolio duration or returns variance.
A risk budget can also be based on categories of investments like domestic equities, domestic debt
securities, international equities, international debt securities.
What are financial risks? What are (3) types of financial risks? ANS >> Financial risks are those that arise
from exposure to financial markets. Examples include:
1. Credit Risk--> this is the uncertainty about whether a counterparty will fulfill their contractual
obligations.
2. Liquidity Risk --> This is the risk of loss when selling an asset at a time when the market conditions
make the sale price less than the fair value of the asset.
INTRODUCTION TO RISK MANAGEMENT EXAM QUESTIONS AND
ANSWERS GUARANTEED SUCCESS.
What is risk management? ANS >> The risk management process seeks to:
1) Identify the risk tolerance of the organization
2) Identify and measure the risks that the organization faces
3) Modify and monitor these risks
The process does not seek to minimize or eliminate all of these risks.
What are the (7) activities a part of the risk management framework? ANS >> 1. Establishing processes
and policies for risk governance
2. Determining the organization's risk tolerance
3. Identifying and measuring existing risks
4. Managing and mitigating risks to achieve the optimal bundle of risks
5. Monitoring risk exposures over time
6. Communicating across the organization
7. Performing strategic risk analysis
What is risk governance? ANS >> This refers to senior management's determination of:
1) the risk tolerance of the organization
2) the elements of its optimal risk exposure strategy
3) the framework for oversight of the risk management function.
, INTRODUCTION TO RISK MANAGEMENT
What is the purpose of a risk management committee? ANS >> A risk management committee can
provide a way for various parts of the organization to bring up issues involving risk measurement,
integration of risks and the best way to mitigate undesirable risks.
How does an organization determine their level of risk tolerance? ANS >> Determining an
organization's risk tolerance involves identifying the risks that the firm can take and the risks that the
firm should avoid or reduce.
(5) factors that affect the determination of risk tolerance includes:
1. Expertise in its lines of business
2. Skill at responding to negative outside events
3. Regulatory environment
4. Financial strength
5. Ability to withstand losses
What is risk budgeting? ANS >> This is the process of allocating a firm's resources to assets (or
investments) by considering their various risk characteristics and how they combine to meet the
organization's risk tolerance.
The goal of risk budgeting is to allocate the overall amount of acceptable risk to the mix of assets or
investments that have the greatest expected returns over time.
How can a risk budget be represented? ANS >> A risk budget can be a single metric, like a portfolio
beta, value at risk, portfolio duration or returns variance.
A risk budget can also be based on categories of investments like domestic equities, domestic debt
securities, international equities, international debt securities.
What are financial risks? What are (3) types of financial risks? ANS >> Financial risks are those that arise
from exposure to financial markets. Examples include:
1. Credit Risk--> this is the uncertainty about whether a counterparty will fulfill their contractual
obligations.
2. Liquidity Risk --> This is the risk of loss when selling an asset at a time when the market conditions
make the sale price less than the fair value of the asset.
