ARM 54 Exam Segment A - Chapters 1-4 Questions and
Answers
Liquidity Risk Correct Ans-the risk that an asset cannot be sold on short notice without
incurring a loss
Enterprise Risk Management Correct Ans-an approach to managing all of an organizations
key business risks and opportunities with the intent of maximizing shareholders value
Risk Management Standard Correct Ans-a document published by a recognized authority
that includes principles, criteria, and best practices for Risk Management
Framework Correct Ans-a structure, including elements such as concepts, methods,
procedures, and metrics, that supports the Risk Management process
Risk Management Framework Correct Ans-a foundation for applying the Risk Management
process throughout the organization
Risk Criteria Correct Ans-information used as a basis for measuring the significance of a
risk
Inherent Risk Correct Ans-risk to an entity apart from any action to alter either the
likelihood or impact of the risk
, ARM 54 Exam Segment A - Chapters 1-4 Questions and
Answers
Residual Risk Correct Ans-risk remaining after actions to alter the risk's likelihood or
impact
Risk-Based Capital Correct Ans-amount of capital an insurer needs to support its
operations, given the insurer's risk characteristics
Hazard Risk Correct Ans-risk from accidental loss, including the possibility of loss or no loss
Risk Profile Correct Ans-a set of characteristics common to all risks in a profile
Systemic Risk Correct Ans-the potential for a major disruption in the function of an entire
market or financial system
Cost of Risk Correct Ans-the total cost incurred by an organization b/c of the possibility of
accidental loss
Value at Risk Correct Ans-a threshold value such that the probability of loss on the
portfolio over the given time horizon exceeds this value, assuming normal markets and no
trading in the portfolio, used to analyze various financial portfolios with different assets and
risk factors
Exposure Correct Ans-any condition that presents a possibility of gain or loss, whether or
not an actual loss occurs
, ARM 54 Exam Segment A - Chapters 1-4 Questions and
Answers
Volatility Correct Ans-frequent fluctuations, such as in the price of an asset
Law of Large Numbers Correct Ans-a mathematical principle stating that as the number of
similar but independent exposure units increases, the relative accuracy of predictions about
future losses increases
Time Horizon Correct Ans-estimated duration, longer time horizons are generally riskier
than shorter ones
Correlation Correct Ans-a relationship between variables, the greater the correlation the
greater the risk
Pure Risk Correct Ans-a chance of loss or no loss, but no chance of gain
Speculative Risk Correct Ans-a chance of loss, no loss, or gain/profit
ex: market risk, inflation risk, interest rate risk, liquidity risk
Credit Risk Correct Ans-the risk that customers or other creditors will fail to make
promised payments as they come due
Answers
Liquidity Risk Correct Ans-the risk that an asset cannot be sold on short notice without
incurring a loss
Enterprise Risk Management Correct Ans-an approach to managing all of an organizations
key business risks and opportunities with the intent of maximizing shareholders value
Risk Management Standard Correct Ans-a document published by a recognized authority
that includes principles, criteria, and best practices for Risk Management
Framework Correct Ans-a structure, including elements such as concepts, methods,
procedures, and metrics, that supports the Risk Management process
Risk Management Framework Correct Ans-a foundation for applying the Risk Management
process throughout the organization
Risk Criteria Correct Ans-information used as a basis for measuring the significance of a
risk
Inherent Risk Correct Ans-risk to an entity apart from any action to alter either the
likelihood or impact of the risk
, ARM 54 Exam Segment A - Chapters 1-4 Questions and
Answers
Residual Risk Correct Ans-risk remaining after actions to alter the risk's likelihood or
impact
Risk-Based Capital Correct Ans-amount of capital an insurer needs to support its
operations, given the insurer's risk characteristics
Hazard Risk Correct Ans-risk from accidental loss, including the possibility of loss or no loss
Risk Profile Correct Ans-a set of characteristics common to all risks in a profile
Systemic Risk Correct Ans-the potential for a major disruption in the function of an entire
market or financial system
Cost of Risk Correct Ans-the total cost incurred by an organization b/c of the possibility of
accidental loss
Value at Risk Correct Ans-a threshold value such that the probability of loss on the
portfolio over the given time horizon exceeds this value, assuming normal markets and no
trading in the portfolio, used to analyze various financial portfolios with different assets and
risk factors
Exposure Correct Ans-any condition that presents a possibility of gain or loss, whether or
not an actual loss occurs
, ARM 54 Exam Segment A - Chapters 1-4 Questions and
Answers
Volatility Correct Ans-frequent fluctuations, such as in the price of an asset
Law of Large Numbers Correct Ans-a mathematical principle stating that as the number of
similar but independent exposure units increases, the relative accuracy of predictions about
future losses increases
Time Horizon Correct Ans-estimated duration, longer time horizons are generally riskier
than shorter ones
Correlation Correct Ans-a relationship between variables, the greater the correlation the
greater the risk
Pure Risk Correct Ans-a chance of loss or no loss, but no chance of gain
Speculative Risk Correct Ans-a chance of loss, no loss, or gain/profit
ex: market risk, inflation risk, interest rate risk, liquidity risk
Credit Risk Correct Ans-the risk that customers or other creditors will fail to make
promised payments as they come due
