ARM 400 - Segment A - Chapters 1, 2, & 3 Questions with correct Answers

Sets of data that are too large to be gathered and analyzed by traditional methods - Answer- Big Data An innovative item that uses sensors; wireless sensor networks; and data collection, transmission, and analysis to further enable the item to be faster, more useful, or otherwise improved - Answer- Smart Product A network of objects that transmit data to and from each other without human interaction - Answer- Internet of Things (IoT) Information, technology, and storage services contractually provided from remote locations, through the internet or another network, without a direct server connection. - Answer- Cloud Computing A distributed digital ledger that facilitates secure transactions without the need for a third party - Answer- Blockchain Text Mining - Answer- Obtaining information through language recognition The use of technological devices in vehicles with wireless communication and GPS tracking that transmit data to businesses or government agencies; some return information for the driver - Answer- Telematics Amount of risk an organization is willing to take on in order to achieve an anticipated result or return - Answer- Risk Appetite A technique to quantify financial risk by measuring the likelihood of losing more than a specific dollar amount over a specific period of time - Answer- Value at risk (VaR) the total cost incurred by an organization because of the possibility of accidental loss - Answer- cost of risk any condition that presents a possibility of gain or loss, whether or not an actual loss occurs - Answer- Exposure Frequent fluctuations, such as in the price of an asset - Answer- Volatility A qualitative estimate of the certainty with which the outcome of a specific event can be predicted - Answer- Likelihood the effects, positive or negative, of an occurrence - Answer- consequences Estimated duration - Answer- Time Horizon A relationship between variables - Answer- correlation a chance of loss or no loss, but no chance of gain - Answer- pure risk a chance of loss, no loss, or gain - Answer- Speculative risk The risk that customers or other creditors will fail to make promised payments as they come due - Answer- Credit Risk the perceived amount of risk based on an individual's or organization's opinion - Answer- Subjective risk the measurable variation in uncertain outcomes base on facts and data - Answer- Objective risk A risk that affects only some individuals, businesses or small groups Not highly correlated - gains and losses tend to occur randomly - Answer- Diversifiable Risk The potential for a major disruption in the function of an entire market or financial system - Answer- Systemic Risk Uncertainty about an investment's future value because of potential changes in the market for that type of investment - Answer- Market Risk The risk that an asset cannot be sold on short notice without incurring a loss - Answer- Liquidity Risk What are the basic risk measures? - Answer- 1. exposure 2. volatility 3. Likelihood 4. Consequences 5. Time Horizon 6. Correlation Name the classifications of risk - Answer- Pure vs. Speculative Subjective vs. Objective Diversifiable vs. Nondiversifiable Quadrants of risk (hazard, operational, financial, and strategic) What two factors highly affect speculative risk? - Answer- Price risk & credit risk Uncertainty about cash flows resulting from possible changes in the cost of raw materials and other inputs (such as lumber, gas or electricity), as well as cost-related changes in the market for completed products and other outputs - Answer- Price risk Examples: Inflation, unemployment, natural disasters, system risks Correlated - Answer- Non-diversifiable risk What makes up the Quadrant of Risk? - Answer- Hazard Risk Operational Risk Financial Risk Strategic Risk Arise from property liability, or personnel loss; Pure risk - Answer- Hazard Risk Arise from people or a failure in processes systems or controls, including those involving information technology; Pure risk - Answer- Operational Risk Arise from the effect of market forces on financial assets or liabilities and include market risk, credit, liquidity risk and price risk; Speculative risk - Answer- Financial Risk Arise from trends in the economy and society, including changes in the economic, political, and competitive environments, as well as from demographic shifts; Speculative risk - Answer- Strategic Risk A foundation for applying the risk management process through the organization - Answer- Risk Management framework What are the five essential activities of the risk management process? - Answer- 1. Scan the environment 2. Identify risks 3. Analyze risks 4. Treat risks 5. Monitor and Review True or false: The key to implementing a process for managing risk is to organize all of the risks an organization faces and move sequentially through the steps of the process by applying each one. - Answer- False. The risk management process is really more of a set of interconnected activities that are occurring at the same time rather than a step-by-step process. Information used as a basis for measuring the significance of a risk - Answer- Risk Criteria What risk criteria factors should be considered to align objectives, resources, and risk management policy? - Answer- -Causes of risk -Effects of risk -Metrics used to measure effects of risk -Time frame of potential effects -Methods to determine level of risk -Approach to combinations of risk Identifying risks relies on the risk professional's ability to performa or facilitate what key tasks involving communication? - Answer- This process relies on the risk professional's ability to perform or facilitate several key tasks involving communication, including these: 1. Asking the right questions of departmental stakeholders to understand their perspectives on the most pressing risks they face 2. Finding external experts who can shed light on emerging risks that the organization may not have anticipated previously and knowing how to speak their language to get the most from interactions with them 3. Collaborating with senior management and the board to ensure that risk associated with the organization's strategy are identified Involves applying the defined risk criteria to determine the source, cause, likelihood, and potential consequences of each of the identified risks Can be quantitative, qualitative, or BOTH - Answer- Analyze Risk (Risk Management Process) Effective risk management processes include ongoing monitoring with periodic review of results. What are they key purposes of monitoring? - Answer- -Determine the effectiveness of controls -Obtain information to improve risk assessment -Analyze events and their consequences to understand trends, successes, and failures -Observe changes in internal and external environments -Identify emerging risks Catastrophes such as recent earthquakes and the 2011 tsunami in Japan pointed out a need for many organizations to evaluate and manage their Select one: A. Derivative risk. B. Political risk. C. Compliance risk. D. Supply-chain risk. - Answer- D. Supply-Chain Risk Encouraging the expression of feelings as well as facts and following up with employees on the problems they report are two ways that managers and supervisors can Select one: A. Cultivate two-way communication. B. Support diverse groups. C. Facilitate active listening D. Maintain control of the conversation. - Answer- A. Cultivate two-way communication. Which one of the following is one of the five steps of the risk management process? Select one: A. Allocate resources B. Establish accountability C. Scan environment D. Align and integrate - Answer- C. Scan environment Samuel was recently hired as a risk management professional for Parker Property Management. He has been asked by senior management to review the organization's current insurance policies to make sure that the organization is adequately protected, and also see if there are any opportunities to save on the premiums. Samuel must do which one of the following through internal communication before he will be able to complete this task? Select one: A. Earn the confidence of the organization's board of directors B. Identify all of the risks that the organization faces C. Become familiar with industry regulations D. Determine the organization's risk appetite - Answer- D. Determine the organization's risk appetite Asking a question such as "How do you think this will work out?" can help a speaker do which one of the following? Select one: A. Build trust among a diverse group of individuals B. Gain the support of executives and decision makers C. Request feedback and determine if the message has been understood D. Deliver a message that recipients don't want to hear - Answer- C. Request feedback and determine if the message has been understood Which of the following risk management program goals is an essential goal for all public entities? Select one: A. Survival B. Growth C. Earning stability D. Continuity of operations - Answer- D. Continuity of operations William is a risk manager for Green Mountain Trucking. He has always analyzed auto loss frequency and severity rates for the fleet. William would like to collect data on vehicle speeds, braking patterns, and distance traveled and compare that with the loss history. Which one of the following would help William capture and analyze this data? Select one: A. Vehicle telematics B. Text mining C. Catastrophe modeling D. Cloud computing - Answer- A. Vehicle telematics Jean is the Risk Manager for a Fortune 1000 company. Her CFO has tasked her to analyze vulnerabilities in the firm's supply chain. The adequacy of suppliers to meet an organization's needs would be an example of which one of the following types of risk? Select one: A. Financial risk B. Operating risk C. Operational risk D. Strategic risk - Answer- C. Operational risk Which one of the following statements is true regarding the basic measures that apply to risk management? Select one: A. Hedging is a risk management strategy that can reduce the risk of correlation. B. Longer time horizons are generally less risky that shorter ones. C. Risk increases as volatility decreases. D. Consequences measure the degree to which an occurrence could positively or negatively affect an organization. - Answer- D. Consequences measure the degree to which an occurrence could positively or negatively affect an organization. Which one of the following is a tool that can be used by fraud investigators to compare documents and analyze notes? Select one: A. Telematics B. Text mining C. Root cause analysis D. Blockchain - Answer- B. Text mining The fundamental purpose of a risk management framework is to Select one: A. Reduce the cost of risk. B. Maximize profits for all stakeholders. C. Integrate risk management throughout the organization. D. Define and eliminate potential losses. - Answer- C. Integrate risk management throughout the organization. According to the law of large numbers, as the number of exposure units insured increases, Select one: A. The relative accuracy of predictions about future losses increases. B. The probability of an underwriting loss increases. C. The size of the average loss declines. D. Fewer losses are expected to occur. - Answer- A. The relative accuracy of predictions about future losses increases. Aligning risks with the organization's risk appetite defines Select one: A. Value at risk. B. Compliance. C. Tolerable uncertainty. D. Social responsibility. - Answer- C. Tolerable uncertainty. An organization must meet the standard of care that it owes to others in order to ensure that Select one: A. Legal obligations are satisfied. B. Operations are efficient. C. Contracts are not breached. D. Post-loss goals are in place. - Answer- A. Legal obligations are satisfied. 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 Select one: A. A financial risk. B. Both a hazard risk and an operational risk. C. Both a hazard risk and a financial risk. D. A strategic risk. - Answer- B. Both a hazard risk and an operational risk. Which one of the following is an internal source that can often provide information regarding risks that aren't obvious? Select one: A. Human resources B. Internal auditing C. Production manager D. Board of directors - Answer- B. Internal auditing Which one of the following provides a measure of the maximum potential damage associated with an occurrence? Select one: A. Exposure B. Duration C. Underwriting risk D. Maximum probable loss - Answer- A. Exposure A new computer chip that could position a company for explosive growth is an example of Select one: A. Strategic planning. B. Operational risk. C. Strategic risk. D. Tactical risk. - Answer- C. Strategic risk. Carla, the risk manager, was asked by senior management to deliver a presentation on cyber risk at an all employees meeting. Even though she was only allotted 30 minutes for her presentation, Carla felt that cyber risk was a very real risk for the corporation and she wanted employees to leave with some fear of it. She wanted to provide employees with as much technical information as possible, and familiarize them with all of the important jargon. Less than 20 minutes into her presentation, Carla could tell that many of the employees were not paying any attention to her presentation. Which one of the following steps in the communication process had Carla failed to consider? Select one: A. Set a clear communication objective B. Pay attention to your body language C. Analyze your audience D. Ask for feedback - Answer- C. Analyze your audience A system or process that an organization uses to achieve its operational goals, internal and external financial reporting goals, or legal and regulatory compliance goals. - Answer- Internal Control Senior management of CAZ Company decides to cut its involvement with the local youth association and no longer allow its employees to work with kids during business hours. Additionally, they will no longer fund the Youth House. Which one of the following best describes how this action may affect its risk management profile? A. Corporation may increase its external social risk by negating any goodwill the community has for the company. B. Corporation may decrease its operations environment as the staff will have more time to devote to the company. C. Corporation may decrease its external political risk by removing itself from any community involvement. D. Corporation may increase its financial exposure by not having tax credits to offset its profits or losses. - Answer- A. Corporation may increase its external social risk by negating any goodwill the community has for the company.