ARM 54 Practice Exam
Risks from accidental loss, including the possibility of loss or no loss defines -
correct answer ✔Hazard risk
The traditional definition of risk management reflects the traditional concept of
risk as - correct answer ✔Negative
Which one of the following statements is true regarding the evolution of risk
and risk management? - correct answer ✔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 - correct answer ✔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? -
correct answer ✔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? - correct answer ✔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 - correct answer
✔Systemic risk
,Which one of the following risk management program goals enhances an
organization's reputation? - correct answer ✔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 - correct answer ✔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 - correct answer ✔Operate economically
and efficiently
Which one of the following is essential to an effective risk management
program? - correct answer ✔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? - correct answer ✔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? - correct answer
✔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, - correct answer ✔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? -
correct answer ✔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? -
correct answer ✔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? - correct answer
✔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 - correct answer
✔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 - correct answer ✔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 - correct
answer ✔The portfolio theory
The concept of correlation, in the context of why enterprise risk management
works, - correct answer ✔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? - correct
answer ✔Loss reduction
Which one of the following statements is true regarding enterprise risk
management (ERM)? - correct answer ✔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? -
correct answer ✔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 - correct answer
✔Loss reduction
Risks from accidental loss, including the possibility of loss or no loss defines -
correct answer ✔Hazard risk
The traditional definition of risk management reflects the traditional concept of
risk as - correct answer ✔Negative
Which one of the following statements is true regarding the evolution of risk
and risk management? - correct answer ✔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 - correct answer ✔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? -
correct answer ✔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? - correct answer ✔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 - correct answer
✔Systemic risk
,Which one of the following risk management program goals enhances an
organization's reputation? - correct answer ✔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 - correct answer ✔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 - correct answer ✔Operate economically
and efficiently
Which one of the following is essential to an effective risk management
program? - correct answer ✔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? - correct answer ✔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? - correct answer
✔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, - correct answer ✔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? -
correct answer ✔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? -
correct answer ✔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? - correct answer
✔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 - correct answer
✔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 - correct answer ✔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 - correct
answer ✔The portfolio theory
The concept of correlation, in the context of why enterprise risk management
works, - correct answer ✔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? - correct
answer ✔Loss reduction
Which one of the following statements is true regarding enterprise risk
management (ERM)? - correct answer ✔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? -
correct answer ✔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 - correct answer
✔Loss reduction
