ARM 402 PRACTICE TEST QUESTIONS WITH
VERIFIED ANSWERS
During which one of the following stages of the strategic management process would an
organization use methods such as Porter's Five Forces Analysis and PESTLE Analysis?
A. Evaluating Strategies
B. Developing Goals
C. Analyzing Environments
D. Formulating Strategies - Answers - C. Analyzing Environments
Once a holistic risk management program is created and put into effect, which one of
the following methods can be used to allow constant and consistent monitoring of the
process?
Select one:
A. Dashboard reporting
B. SWOT analysis
C. Bow-tie diagram
D. Feedback loop - Answers - D. Feedback loop
The liability loss exposure that exists when an organization is legally responsible for
bodily injury or property damage caused by an accident that occurs on an organization's
owned, leased, or rented property is
Select one:
A. Operations liability.
B. Premises and operations liability.
C. Professional liability.
D. Property liability. - Answers - B. Premises and operations liability.
Which one of the following statements is correct regarding formulating an organization's
long-term strategies?
Select one:
A. Long-term strategies to improve performance and/or create a competitive advantage,
are based on the organization's goals and analysis of internal and external
environments.
B. Formulating an organization's long-term strategy involves determining the "who,"
"what," and "when" responsibilities of each department.
C. A long-term strategy should be an aspirational description of what an organization
will accomplish in the long-term future.
D. All parts of an organization play a role in formulating an organization's long-term
strategies. - Answers - A. Long-term strategies to improve performance and/or create a
competitive advantage, are based on the organization's goals and analysis of internal
and external environments.
,Among the properties owned by Hagen Company are five buildings constructed from
cement blocks. Hagen did not include these buildings for coverage under its property
insurance policy because losses to these structures occur so infrequently. When losses
do occur, Hagen Company simply pays for the losses through cash flow or current
assets. Hagen's method of dealing with losses to these buildings is called
Select one:
A. Self insurance.
B. Group self insurance.
C. Third-party administered plan.
D. Informal retention. - Answers - D. Informal retention.
Frozen food spoiling in an unrefrigerated vehicle is an example of
Select one:
A. A tort.
B. Poor driver training.
C. An inherent vice.
D. Vicarious liability. - Answers - C. An inherent vice.
Since there is no formal process for creating a trade secret, the risk control measures
associated with trade secret loss control focus on maintaining
Select one:
A. Legality.
B. Secrecy.
C. Disclosure.
D. Accountability. - Answers - B. Secrecy.
Punitive damages are intended to
Select one:
A. Punish the plaintiff.
B. Compensate the injured party for pain and suffering.
C. Punish the defendant.
D. Compensate the defendant for medical expenses. - Answers - C. Punish the
defendant.
Private insurers are reluctant to provide windstorm insurance on coastal properties. This
is because the loss exposures fail to meet the criterion that ideally insurable exposures
must be
Select one:
A. Fortuitous.
B. Definite and measurable.
C. A large number of similar exposure units.
D. Independent and not catastrophic. - Answers - D. Independent and not catastrophic.
Risk appetite is an important component of strategic risk management (SRM). Which
one of the following statements is correct with respect to an organization's risk appetite?
Select one:
, A. Economic forces, market forces, and competition generally have little effect on an
organizations' risk appetite.
B. An organization's risk appetite is typically independent of its capital and other assets,
including its human resources.
C. Because risk appetite is based on the attitudes of executives and shareholders, it is
usually static and does not vary over time.
D. Regulatory conditions, political risks, and anti-trust or other legal concerns can
reduce an organization's risk appetite. - Answers - D. Regulatory conditions, political
risks, and anti-trust or other legal concerns can reduce an organization's risk appetite.
The duration of a patent right varies depending on the type of patent. Which one of the
following patents last for 14 years from the date of issuance?
Select one:
A. Process patent
B. Design patent
C. Utility patent
D. Plant patent - Answers - B. Design patent
An organization may use a large deductible plan to achieve the purpose of which one of
the following?
Select one:
A. Increase its cost of risk
B. Defer cash outflows for retained loss reserves.
C. Retain high severity losses
D. Avoid paying residual market loadings in all jurisdictions - Answers - B. Defer cash
outflows for retained loss reserves.
The maximum amount of insurance or limit of liability that an insurer will accept on a
single loss exposures is called a
Select one:
A. Retrocession.
B. Line.
C. Loss limit.
D. Novation. - Answers - B. Line.
Which one of the following statements is true regarding valuing intellectual property?
Select one:
A. The cost approach to valuing intellectual property is the standard recognized by the
Internal Revenue Service.
B. The income approach to valuing intellectual property is the standard recognized by
most courts.
C. The value of a piece of intellectual property may be used to determine the proportion
of risk management resources that should be devoted to it.
D. It is relatively easy to assign a specific value to intellectual property. - Answers - C.
The value of a piece of intellectual property may be used to determine the proportion of
risk management resources that should be devoted to it.
VERIFIED ANSWERS
During which one of the following stages of the strategic management process would an
organization use methods such as Porter's Five Forces Analysis and PESTLE Analysis?
A. Evaluating Strategies
B. Developing Goals
C. Analyzing Environments
D. Formulating Strategies - Answers - C. Analyzing Environments
Once a holistic risk management program is created and put into effect, which one of
the following methods can be used to allow constant and consistent monitoring of the
process?
Select one:
A. Dashboard reporting
B. SWOT analysis
C. Bow-tie diagram
D. Feedback loop - Answers - D. Feedback loop
The liability loss exposure that exists when an organization is legally responsible for
bodily injury or property damage caused by an accident that occurs on an organization's
owned, leased, or rented property is
Select one:
A. Operations liability.
B. Premises and operations liability.
C. Professional liability.
D. Property liability. - Answers - B. Premises and operations liability.
Which one of the following statements is correct regarding formulating an organization's
long-term strategies?
Select one:
A. Long-term strategies to improve performance and/or create a competitive advantage,
are based on the organization's goals and analysis of internal and external
environments.
B. Formulating an organization's long-term strategy involves determining the "who,"
"what," and "when" responsibilities of each department.
C. A long-term strategy should be an aspirational description of what an organization
will accomplish in the long-term future.
D. All parts of an organization play a role in formulating an organization's long-term
strategies. - Answers - A. Long-term strategies to improve performance and/or create a
competitive advantage, are based on the organization's goals and analysis of internal
and external environments.
,Among the properties owned by Hagen Company are five buildings constructed from
cement blocks. Hagen did not include these buildings for coverage under its property
insurance policy because losses to these structures occur so infrequently. When losses
do occur, Hagen Company simply pays for the losses through cash flow or current
assets. Hagen's method of dealing with losses to these buildings is called
Select one:
A. Self insurance.
B. Group self insurance.
C. Third-party administered plan.
D. Informal retention. - Answers - D. Informal retention.
Frozen food spoiling in an unrefrigerated vehicle is an example of
Select one:
A. A tort.
B. Poor driver training.
C. An inherent vice.
D. Vicarious liability. - Answers - C. An inherent vice.
Since there is no formal process for creating a trade secret, the risk control measures
associated with trade secret loss control focus on maintaining
Select one:
A. Legality.
B. Secrecy.
C. Disclosure.
D. Accountability. - Answers - B. Secrecy.
Punitive damages are intended to
Select one:
A. Punish the plaintiff.
B. Compensate the injured party for pain and suffering.
C. Punish the defendant.
D. Compensate the defendant for medical expenses. - Answers - C. Punish the
defendant.
Private insurers are reluctant to provide windstorm insurance on coastal properties. This
is because the loss exposures fail to meet the criterion that ideally insurable exposures
must be
Select one:
A. Fortuitous.
B. Definite and measurable.
C. A large number of similar exposure units.
D. Independent and not catastrophic. - Answers - D. Independent and not catastrophic.
Risk appetite is an important component of strategic risk management (SRM). Which
one of the following statements is correct with respect to an organization's risk appetite?
Select one:
, A. Economic forces, market forces, and competition generally have little effect on an
organizations' risk appetite.
B. An organization's risk appetite is typically independent of its capital and other assets,
including its human resources.
C. Because risk appetite is based on the attitudes of executives and shareholders, it is
usually static and does not vary over time.
D. Regulatory conditions, political risks, and anti-trust or other legal concerns can
reduce an organization's risk appetite. - Answers - D. Regulatory conditions, political
risks, and anti-trust or other legal concerns can reduce an organization's risk appetite.
The duration of a patent right varies depending on the type of patent. Which one of the
following patents last for 14 years from the date of issuance?
Select one:
A. Process patent
B. Design patent
C. Utility patent
D. Plant patent - Answers - B. Design patent
An organization may use a large deductible plan to achieve the purpose of which one of
the following?
Select one:
A. Increase its cost of risk
B. Defer cash outflows for retained loss reserves.
C. Retain high severity losses
D. Avoid paying residual market loadings in all jurisdictions - Answers - B. Defer cash
outflows for retained loss reserves.
The maximum amount of insurance or limit of liability that an insurer will accept on a
single loss exposures is called a
Select one:
A. Retrocession.
B. Line.
C. Loss limit.
D. Novation. - Answers - B. Line.
Which one of the following statements is true regarding valuing intellectual property?
Select one:
A. The cost approach to valuing intellectual property is the standard recognized by the
Internal Revenue Service.
B. The income approach to valuing intellectual property is the standard recognized by
most courts.
C. The value of a piece of intellectual property may be used to determine the proportion
of risk management resources that should be devoted to it.
D. It is relatively easy to assign a specific value to intellectual property. - Answers - C.
The value of a piece of intellectual property may be used to determine the proportion of
risk management resources that should be devoted to it.
