NEWEST ASSOCIATE IN RISK
MANAGEMENT (ARM) EXAM | ULTIMATE
EXAM WITH CORRECT ANSWERS AND
RATIONALES FOR CERTIFICATION
SUCCESS
1. The primary goal of risk management is to:
A) Eliminate all risks facing the organization
B) Minimize the adverse effects of risk on the
organization's resources and earnings
C) Transfer all risks to insurance companies
D) Avoid any activity that involves uncertainty
E) Maximize short-term profits regardless of risk
Correct answer: B
Rationale: Risk management aims to manage risk, not
eliminate it entirely, to protect organizational
resources.
2. Which of the following is an example of a pure risk?
A) Investing in a new product line
B) The risk of a fire damaging a warehouse
,C) The risk of currency fluctuation
D) The risk of a stock market decline
E) The risk of interest rate changes
Correct answer: B
Rationale: Pure risks involve only the possibility of
loss or no loss, with no possibility of gain.
3. Which of the following is an example of a
speculative risk?
A) The risk of an earthquake
B) The risk of theft
C) Investing in a new business venture
D) The risk of employee injury
E) The risk of a product liability lawsuit
Correct answer: C
Rationale: Speculative risks offer the possibility of
gain or loss.
,4. A company's factory is located on a flood plain.
The company decides to build a flood wall. This is an
example of:
A) Risk avoidance
B) Risk reduction (loss control)
C) Risk transfer
D) Risk retention
E) Risk acceptance
Correct answer: B
Rationale: Building a flood wall reduces the severity
of potential flood losses.
5. A company decides not to manufacture a product
that has a high risk of product liability lawsuits. This
is an example of:
A) Risk avoidance
B) Risk reduction
C) Risk transfer
D) Risk retention
E) Risk financing
, Correct answer: A
Rationale: Avoiding the activity altogether eliminates
the risk.
6. A company purchases an insurance policy to cover
potential property damage. This is an example of:
A) Risk avoidance
B) Risk reduction
C) Risk transfer
D) Risk retention
E) Risk acceptance
Correct answer: C
Rationale: Insurance transfers the financial
consequences of risk to the insurer.
7. A company decides to self-insure its workers'
compensation exposure. This is an example of:
A) Risk avoidance
B) Risk reduction
C) Risk transfer
D) Risk retention
MANAGEMENT (ARM) EXAM | ULTIMATE
EXAM WITH CORRECT ANSWERS AND
RATIONALES FOR CERTIFICATION
SUCCESS
1. The primary goal of risk management is to:
A) Eliminate all risks facing the organization
B) Minimize the adverse effects of risk on the
organization's resources and earnings
C) Transfer all risks to insurance companies
D) Avoid any activity that involves uncertainty
E) Maximize short-term profits regardless of risk
Correct answer: B
Rationale: Risk management aims to manage risk, not
eliminate it entirely, to protect organizational
resources.
2. Which of the following is an example of a pure risk?
A) Investing in a new product line
B) The risk of a fire damaging a warehouse
,C) The risk of currency fluctuation
D) The risk of a stock market decline
E) The risk of interest rate changes
Correct answer: B
Rationale: Pure risks involve only the possibility of
loss or no loss, with no possibility of gain.
3. Which of the following is an example of a
speculative risk?
A) The risk of an earthquake
B) The risk of theft
C) Investing in a new business venture
D) The risk of employee injury
E) The risk of a product liability lawsuit
Correct answer: C
Rationale: Speculative risks offer the possibility of
gain or loss.
,4. A company's factory is located on a flood plain.
The company decides to build a flood wall. This is an
example of:
A) Risk avoidance
B) Risk reduction (loss control)
C) Risk transfer
D) Risk retention
E) Risk acceptance
Correct answer: B
Rationale: Building a flood wall reduces the severity
of potential flood losses.
5. A company decides not to manufacture a product
that has a high risk of product liability lawsuits. This
is an example of:
A) Risk avoidance
B) Risk reduction
C) Risk transfer
D) Risk retention
E) Risk financing
, Correct answer: A
Rationale: Avoiding the activity altogether eliminates
the risk.
6. A company purchases an insurance policy to cover
potential property damage. This is an example of:
A) Risk avoidance
B) Risk reduction
C) Risk transfer
D) Risk retention
E) Risk acceptance
Correct answer: C
Rationale: Insurance transfers the financial
consequences of risk to the insurer.
7. A company decides to self-insure its workers'
compensation exposure. This is an example of:
A) Risk avoidance
B) Risk reduction
C) Risk transfer
D) Risk retention
