ARM 54 Practice Exam With Complete Solutions 2023

ARM 54 Practice Exam With Complete Solutions 2023 Risks from accidental loss, including the possibility of loss or no loss defines Hazard risk The traditional definition of risk management reflects the traditional concept of risk as Negative Which one of the following statements is true regarding the evolution of risk and risk management? 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 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? 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? 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 Systemic risk Which one of the following risk management program goals enhances an organization's reputation? 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 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 Operate economically and efficiently Which one of the following is essential to an effective risk management program? 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? 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? 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, 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? 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? 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? 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 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 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 The portfolio theory 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-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? Loss reduction Which one of the following statements is true regarding enterprise risk management (ERM)? 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? 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 Loss reduction Integration of the management principles governing the organization with the risk management process is Risk governance As the risk manager for Alpha Corp, Ann Marie recommended that Alpha should follow an international risk management standard and framework. Which one of the following describes risk management standards developed by recognized authorities? Organizations follow risk management standards voluntarily The structure that supports the organization's risk management objectives and strategies is the Risk management framework A U.S.-based athletic apparel company has manufacturing plants in the Pacific Rim. Its major product markets are the U.S., Canada, and Europe. The company would like to develop a risk management program for its supply-chain risk. A recognized international standard for this purpose is ISO 31000 Which one of the following statements is true regarding the International Organization for Standardization's ISO 31000 standard? ISO 31000 applies regardless of whether the risk has positive and/or negative consequences The ISO 31000 Standard provides risk management principles, a framework, and a process. One part of the process includes risk identification, risk analysis, and risk evaluation. This part of the process is Risk assessment-The ISO 31000 risk assessment includes risk identification, risk analysis, and risk evaluation. Based on the ISO 31000 definition of risk assessment, which one of the following steps includes determining the level of risk and its potential effects on the organization? Risk analysis-Risk analysis is the step of risk assessment that includes determining the level of risk and its potential effects on the organization. Information used to evaluate the significance of an organization's various risks is known as Risk criteria Which one of the following best describes a result of an organization's adaptive strategy? Gaining and maintaining a competitive advantage An evolving trend in risk management is to Prepare for unknown risks The changing risk landscape many companies are recognizing as significant leads to Leveraging enterprise risk management (ERM) to prepare for and respond to risks. Which one of the following components of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework refers to the practices that permit an organization to continually and through all departments assess and respond to risk? Performance An organization is reviewing the tenure of its board members and contemplating a rotation to refresh the decision making process. This action is related to which Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework component? Governance and culture Aspects of The Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework's components that are particularly integral to an organization's achievement of enhanced value are Governance, strategy, and performance Which one of the following statements about standards—risk management, Solvency II, and Basel II and III— is true? Many risk management standards, such as ISO 31000, are voluntary According to Basel III principles, senior management is responsible for consistently implementing and maintaining the organization's policies, processes, and systems used to manage operational risk throughout the bank in a manner consistent with the bank's Risk appetite and tolerance Imposing higher standards of insurer risk management and governance is considered one of the three pillars of which one of the following regulatory standards? Solvency II Solvency II is a new regulatory standard in the European Union (EU) to establish principles for risk management and consistency in regulation for which one of the following industries? Insurance Based on Basel III principles, which one of the following groups should take the lead in establishing a strong risk management culture? Board of directors-Basel III is a comprehensive set of reform measures to strengthen the regulation, supervision, and risk management of the banking sector. Based on Basel III principles, the board of directors should take the lead in establishing a strong risk management culture. Fire, wind, theft, business interruption, sickness and disability, and liability claims are all considered Hazard risks-Fire, wind, theft, business interruption, sickness and disability, and liability claims are all considered hazard risks. The cause of loss is also referred to as a Peril Avoidance can be called proactive avoidance when the organization Decides not to assume a loss exposure in the first place-When an organization identifies a loss exposure and consciously decides to not assume it by avoiding it, then the avoidance is considered proactive. Because losses cannot be eliminated, an organization must decide whether to retain or transfer its loss exposures. Which one of the following describes losses which are typically retained? Losses with low frequency and low severity Tania has been unemployed for six months, and her unpaid bills are mounting. She recently damaged the front fender of her vehicle after running off the road. When seeking repairs to the vehicle, she convinced the auto body shop to include damages from previous incidents in the estimate. This would allow her to collect extra money from her insurer. From an insurance and risk management perspective, Tania's behavior is indicative of a Moral hazard Jim's Crab Hut restaurant has just added an extra seating section. The restaurant's risk manager is extremely concerned with the fact that this section requires customers to take a small step down to enter the section and it may be easy to miss the step and fall. This exposure of concern to the risk manager is a Liability loss exposure Jemma has two pairs of earrings she wants to ensure against theft. Jemma's earrings are categorized as Personal property Sydney's Paint and Body Shop has experienced an increase in its volume of business as well as an increase in inventory, supplies, and transactions. Sydney has not hired additional employees, nor have his profits substantially increased but he has noticed more clutter around the paint shop in terms of oily rags, supplies, paint, and waste. If Sydney viewed his business in terms of risk exposures, the exposures he would be most concerned about would be the Property loss exposures Commercial package policies typically include coverage for business property, liability, and Business income Jordan is risk manager of Burroughs Mills, a textiles and clothing company. Jordan just renewed the company's property insurance. The insurance that Jordan purchased on the company's warehouse covers all losses except those losses that are excluded. If a loss occurs, the insurer will take depreciation into consideration when determining the loss settlement. Which one of the following descriptions applies to the property insurance that Jordan purchased? Direct physical loss, actual cash value coverage The purpose of all workers compensation laws is to provide Medical and wage replacement benefits to injured employees A group of female employees at Third Federal Bank filed a lawsuit against the bank. The lawsuit alleges that the bank consistently failed to promote qualified women to senior management positions because of their gender. If the lawsuit is successful, which one of the following coverages would pay the damage award? Employment practices liability insurance