ARM 54 Assignment 4 Practice exam
One category of operational risk includes procedures and practices
organizations use to conduct business activities. This category is: - correct
answer ✔Process Risk
Which one of the following categories of operational risk included the many
risks which are hazard risks or other forms of insurable risk? - correct answer
✔People
One category of operational risk that a business must manage is risk
associated with people. One of the strategies to mitigate people risk is to use
care when hiring employees. This strategy employs background checks, pre-
employment tests, and checking references. This strategy is; - correct answer
✔Selection
The process of comparing the key risk indicators of an organization with those
of other organizations on the same industry is known as; - correct answer
✔Benchmarking
Insurance company monitors key indicators of underwriting effectiveness.
Some indicators they monitor include: percentage of business quoted that was
written, application processing time, premium volume handled by
underwriters, skill level of underwriters, and benchmarking between different
underwriting offices. The indicators of underwriting performance insurance
company uses are called: - correct answer ✔Control Indicators
Which one of the following statements is true regarding key risk indicators
(KRI)? - correct answer ✔A KRI must be leading, rather than lagging, to be
effective.
, Which one of the following types of organization would most likely be affected
by commodity price risk? - correct answer ✔A manufacturer
Most organizations face some market risk, credit risk, and/or price risk.
Collectively, these risks are called? - correct answer ✔Financial risks
Which one of the following types of financial risk has only negative potential? -
correct answer ✔Credit Risk
Management of LMN Insurance company is considering investing in the
Stability-Growth mutual Fund; however they are concerned about the volatility
of the investment. The fund's manager said that on any given day, there is a
5% probability of losing more than 3% of the investment's worth. The statistic
quoted by the fund manager is? - correct answer ✔Value at Risk (VAR)
Which one of the following statements is true if earnings at risk are $200,000
with 90% confidence? - correct answer ✔Earnings at risk are projected to be
less than $200,000 10% of the time.
Which one of the following is a benefit of the conditional value at risk (CVaR)
method? - correct answer ✔It takes into account the extremely large losses
that may occur.
A significant difference between the Basel I regulatory capital requirements
and the Basel II regulatory requirements is that Basel II? - correct answer
✔includes a capital requirement for operational risk that Basel I does not
include.
The Basel I capital requirements differ from capital-to-assets ratios used prior
to 2003 by? - correct answer ✔Considering the relative risk of the assets
One category of operational risk includes procedures and practices
organizations use to conduct business activities. This category is: - correct
answer ✔Process Risk
Which one of the following categories of operational risk included the many
risks which are hazard risks or other forms of insurable risk? - correct answer
✔People
One category of operational risk that a business must manage is risk
associated with people. One of the strategies to mitigate people risk is to use
care when hiring employees. This strategy employs background checks, pre-
employment tests, and checking references. This strategy is; - correct answer
✔Selection
The process of comparing the key risk indicators of an organization with those
of other organizations on the same industry is known as; - correct answer
✔Benchmarking
Insurance company monitors key indicators of underwriting effectiveness.
Some indicators they monitor include: percentage of business quoted that was
written, application processing time, premium volume handled by
underwriters, skill level of underwriters, and benchmarking between different
underwriting offices. The indicators of underwriting performance insurance
company uses are called: - correct answer ✔Control Indicators
Which one of the following statements is true regarding key risk indicators
(KRI)? - correct answer ✔A KRI must be leading, rather than lagging, to be
effective.
, Which one of the following types of organization would most likely be affected
by commodity price risk? - correct answer ✔A manufacturer
Most organizations face some market risk, credit risk, and/or price risk.
Collectively, these risks are called? - correct answer ✔Financial risks
Which one of the following types of financial risk has only negative potential? -
correct answer ✔Credit Risk
Management of LMN Insurance company is considering investing in the
Stability-Growth mutual Fund; however they are concerned about the volatility
of the investment. The fund's manager said that on any given day, there is a
5% probability of losing more than 3% of the investment's worth. The statistic
quoted by the fund manager is? - correct answer ✔Value at Risk (VAR)
Which one of the following statements is true if earnings at risk are $200,000
with 90% confidence? - correct answer ✔Earnings at risk are projected to be
less than $200,000 10% of the time.
Which one of the following is a benefit of the conditional value at risk (CVaR)
method? - correct answer ✔It takes into account the extremely large losses
that may occur.
A significant difference between the Basel I regulatory capital requirements
and the Basel II regulatory requirements is that Basel II? - correct answer
✔includes a capital requirement for operational risk that Basel I does not
include.
The Basel I capital requirements differ from capital-to-assets ratios used prior
to 2003 by? - correct answer ✔Considering the relative risk of the assets
