ARM 54 PRACTICE EXAM QUESTIONS AND ANSWERS
Risks from accidental loss, including the possibility of loss or no loss defines - CORRECT
ANSWER✅✅Hazard risk
The traditional definition of risk management reflects the traditional concept of risk as - CORRECT
ANSWER✅✅Negative
Which one of the following statements is true regarding the evolution of risk and risk management? -
CORRECT ANSWER✅✅The definition of risk has evolved to include positive as well as negative
attributes
The Dodd-Frank Act, Solvency II, and Basel III all have the purpose of reducing - CORRECT
ANSWER✅✅Systemic risk
Which one of the following is a common risk management benefit the entire economy would realize as a
consequence of a risk management program? - CORRECT ANSWER✅✅Reduced waste of resources-Risk
management reduces waste of resources. Allocating resources for potential losses is a cost because the
resources cannot be used for other purposes that could promote growth.
To an insured organization, which one of the following is an example of a cost of risk associated with an
asset or activity? - CORRECT ANSWER✅✅Cost of sprinkler systems
One benefit of risk management to the economy is the reduction of the potential for a major disruption
in the functioning of financial markets and the financial system. This risk that is reduced is called -
CORRECT ANSWER✅✅Systemic risk
Which one of the following risk management program goals enhances an organization's reputation? -
CORRECT ANSWER✅✅Social responsibility-Social responsibility is the risk management program goal
that will most likely enhance an organization's reputation.
An organization must meet the standard of care that it owes to others in order to ensure that - CORRECT
ANSWER✅✅Legal obligations are satisfied-An organization must meet the standard of care that it owes
to others in order to ensure that legal obligations are satisfied.
,Risk management programs should - CORRECT ANSWER✅✅Operate economically and efficiently
Which one of the following is essential to an effective risk management program? - CORRECT
ANSWER✅✅Support of the organization's senior management-Support of the organization's senior
management is essential to an effective risk management program.
Which one of the following provides a measure of the maximum potential damage associated with an
occurrence? - CORRECT ANSWER✅✅Exposure
In an effort to grow its personal lines book, an insurer decides to offer discounts on homeowners and
personal auto insurance to the employees of its largest business lines account. Which one of the
following risk measures is most likely to increase as a result of this marketing decision? - CORRECT
ANSWER✅✅Correlation-The insurer's risk correlation will most likely increase as a result of this
marketing decision.
According to the law of large numbers, as the number of exposure units insured increases, - CORRECT
ANSWER✅✅The relative accuracy of predictions about future losses increases-According to the law of
large numbers, as the number of exposure units insured increases, the relative accuracy of predictions
about future losses increases.
The relationship between which two basic measures is critical for risk management in assessing risk and
deciding whether and how to manage it? - CORRECT ANSWER✅✅Likelihood and consequences
Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true
with respect to this type of risk classification? - CORRECT ANSWER✅✅Diversifiable risks tend not to be
correlated so they can be managed through diversification or spread of risk-Diversifiable risks tend not
to be correlated so they can be managed through diversification or spread of risk.
George works for a large company and part of his job is to monitor assets according to their liquidity.
George is particularly concerned that the company fleet cars are affecting its liquidity and rising fuel
prices are having an adverse effect during tight economic markets. If George's concerns were
categorized as causes of loss according to the quadrants of risk, his concern most directly relates to
which one of the following types of risks? - CORRECT ANSWER✅✅Financial risks
, Billy owns a beach front cottage which has become his primary residence. Billy's primary concern is that
his home will be hit by a hurricane and badly damaged or even destroyed. For Billy, this hurricane risk is
a - CORRECT ANSWER✅✅Subjective risk
Carol has worked as a payroll clerk for a small organization for 20 years. Over the years she received
only two small salary increases and began to embezzle funds from the company since she felt she was
not adequately compensated for her job efforts. In terms of the quadrants of risk, Carol's theft risk can
be classified as - CORRECT ANSWER✅✅Both a hazard risk and an operational risk-Carol's theft risk can
be classified as both a hazard risk and an operational risk.
Three main theoretical concepts explain how enterprise risk management (ERM) works. One theoretical
concept considers not only the combination of individual risks but also their interactions. This
theoretical concept is - CORRECT ANSWER✅✅The portfolio theory
The concept of correlation, in the context of why enterprise risk management works, - CORRECT
ANSWER✅✅Is the proposition that correlation increases risk while uncorrelated risks can reduce risk-
The concept of correlation, in the context of why enterprise risk management works, is the proposition
that correlation increases risk while uncorrelated risks can reduce risk.
Major Corporation delivers its products nationally using its own fleet of vehicles that are specially
designed to encapsulate and protect the cargo they are carrying. What risk management technique is
being used? - CORRECT ANSWER✅✅Loss reduction
Which one of the following statements is true regarding enterprise risk management (ERM)? - CORRECT
ANSWER✅✅The ERM framework encompasses all stakeholders in the organization
Which one of the following is an objective and consistent measurement tool that can be used by
organizations to conduct periodic self-assessments? - CORRECT ANSWER✅✅The Risk Maturity Model
(RMM)
Conrad Sales Company's vehicles are equipped with a device that allows them to locate each vehicle for
tracking purposes. If a vehicle is stolen, the tracking devices can be used to recover the vehicle more
quickly. Conrad Sales Company is using the risk management technique of - CORRECT ANSWER✅✅Loss
reduction
Risks from accidental loss, including the possibility of loss or no loss defines - CORRECT
ANSWER✅✅Hazard risk
The traditional definition of risk management reflects the traditional concept of risk as - CORRECT
ANSWER✅✅Negative
Which one of the following statements is true regarding the evolution of risk and risk management? -
CORRECT ANSWER✅✅The definition of risk has evolved to include positive as well as negative
attributes
The Dodd-Frank Act, Solvency II, and Basel III all have the purpose of reducing - CORRECT
ANSWER✅✅Systemic risk
Which one of the following is a common risk management benefit the entire economy would realize as a
consequence of a risk management program? - CORRECT ANSWER✅✅Reduced waste of resources-Risk
management reduces waste of resources. Allocating resources for potential losses is a cost because the
resources cannot be used for other purposes that could promote growth.
To an insured organization, which one of the following is an example of a cost of risk associated with an
asset or activity? - CORRECT ANSWER✅✅Cost of sprinkler systems
One benefit of risk management to the economy is the reduction of the potential for a major disruption
in the functioning of financial markets and the financial system. This risk that is reduced is called -
CORRECT ANSWER✅✅Systemic risk
Which one of the following risk management program goals enhances an organization's reputation? -
CORRECT ANSWER✅✅Social responsibility-Social responsibility is the risk management program goal
that will most likely enhance an organization's reputation.
An organization must meet the standard of care that it owes to others in order to ensure that - CORRECT
ANSWER✅✅Legal obligations are satisfied-An organization must meet the standard of care that it owes
to others in order to ensure that legal obligations are satisfied.
,Risk management programs should - CORRECT ANSWER✅✅Operate economically and efficiently
Which one of the following is essential to an effective risk management program? - CORRECT
ANSWER✅✅Support of the organization's senior management-Support of the organization's senior
management is essential to an effective risk management program.
Which one of the following provides a measure of the maximum potential damage associated with an
occurrence? - CORRECT ANSWER✅✅Exposure
In an effort to grow its personal lines book, an insurer decides to offer discounts on homeowners and
personal auto insurance to the employees of its largest business lines account. Which one of the
following risk measures is most likely to increase as a result of this marketing decision? - CORRECT
ANSWER✅✅Correlation-The insurer's risk correlation will most likely increase as a result of this
marketing decision.
According to the law of large numbers, as the number of exposure units insured increases, - CORRECT
ANSWER✅✅The relative accuracy of predictions about future losses increases-According to the law of
large numbers, as the number of exposure units insured increases, the relative accuracy of predictions
about future losses increases.
The relationship between which two basic measures is critical for risk management in assessing risk and
deciding whether and how to manage it? - CORRECT ANSWER✅✅Likelihood and consequences
Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true
with respect to this type of risk classification? - CORRECT ANSWER✅✅Diversifiable risks tend not to be
correlated so they can be managed through diversification or spread of risk-Diversifiable risks tend not
to be correlated so they can be managed through diversification or spread of risk.
George works for a large company and part of his job is to monitor assets according to their liquidity.
George is particularly concerned that the company fleet cars are affecting its liquidity and rising fuel
prices are having an adverse effect during tight economic markets. If George's concerns were
categorized as causes of loss according to the quadrants of risk, his concern most directly relates to
which one of the following types of risks? - CORRECT ANSWER✅✅Financial risks
, Billy owns a beach front cottage which has become his primary residence. Billy's primary concern is that
his home will be hit by a hurricane and badly damaged or even destroyed. For Billy, this hurricane risk is
a - CORRECT ANSWER✅✅Subjective risk
Carol has worked as a payroll clerk for a small organization for 20 years. Over the years she received
only two small salary increases and began to embezzle funds from the company since she felt she was
not adequately compensated for her job efforts. In terms of the quadrants of risk, Carol's theft risk can
be classified as - CORRECT ANSWER✅✅Both a hazard risk and an operational risk-Carol's theft risk can
be classified as both a hazard risk and an operational risk.
Three main theoretical concepts explain how enterprise risk management (ERM) works. One theoretical
concept considers not only the combination of individual risks but also their interactions. This
theoretical concept is - CORRECT ANSWER✅✅The portfolio theory
The concept of correlation, in the context of why enterprise risk management works, - CORRECT
ANSWER✅✅Is the proposition that correlation increases risk while uncorrelated risks can reduce risk-
The concept of correlation, in the context of why enterprise risk management works, is the proposition
that correlation increases risk while uncorrelated risks can reduce risk.
Major Corporation delivers its products nationally using its own fleet of vehicles that are specially
designed to encapsulate and protect the cargo they are carrying. What risk management technique is
being used? - CORRECT ANSWER✅✅Loss reduction
Which one of the following statements is true regarding enterprise risk management (ERM)? - CORRECT
ANSWER✅✅The ERM framework encompasses all stakeholders in the organization
Which one of the following is an objective and consistent measurement tool that can be used by
organizations to conduct periodic self-assessments? - CORRECT ANSWER✅✅The Risk Maturity Model
(RMM)
Conrad Sales Company's vehicles are equipped with a device that allows them to locate each vehicle for
tracking purposes. If a vehicle is stolen, the tracking devices can be used to recover the vehicle more
quickly. Conrad Sales Company is using the risk management technique of - CORRECT ANSWER✅✅Loss
reduction
