ARM 54 Practice Exam with Complete Solutions
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 Ans-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 Ans-
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 Ans-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 Ans-Both a hazard risk and
an operational risk-Carol's theft risk can be classified as both a hazard risk and an operational
risk.
, ARM 54 Practice Exam with Complete Solutions
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 Ans-The portfolio theory
The concept of correlation, in the context of why enterprise risk management works,
Correct Ans-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 Ans-Loss reduction
Which one of the following statements is true regarding enterprise risk management (ERM)?
Correct Ans-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 Ans-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 Ans-Loss reduction
, ARM 54 Practice Exam with Complete Solutions
Integration of the management principles governing the organization with the risk
management process is Correct Ans-Risk governance
Risks from accidental loss, including the possibility of loss or no loss defines Correct Ans-
Hazard risk
The traditional definition of risk management reflects the traditional concept of risk as
Correct Ans-Negative
Which one of the following statements is true regarding the evolution of risk and risk
management? Correct Ans-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 Ans-
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 Ans-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.
, ARM 54 Practice Exam with Complete Solutions
To an insured organization, which one of the following is an example of a cost of risk
associated with an asset or activity? Correct Ans-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 Ans-Systemic risk
Which one of the following risk management program goals enhances an organization's
reputation? Correct Ans-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 Ans-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 Ans-Operate economically and efficiently
Which one of the following is essential to an effective risk management program? Correct
Ans-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 Ans-Exposure
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 Ans-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 Ans-
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 Ans-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 Ans-Both a hazard risk and
an operational risk-Carol's theft risk can be classified as both a hazard risk and an operational
risk.
, ARM 54 Practice Exam with Complete Solutions
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 Ans-The portfolio theory
The concept of correlation, in the context of why enterprise risk management works,
Correct Ans-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 Ans-Loss reduction
Which one of the following statements is true regarding enterprise risk management (ERM)?
Correct Ans-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 Ans-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 Ans-Loss reduction
, ARM 54 Practice Exam with Complete Solutions
Integration of the management principles governing the organization with the risk
management process is Correct Ans-Risk governance
Risks from accidental loss, including the possibility of loss or no loss defines Correct Ans-
Hazard risk
The traditional definition of risk management reflects the traditional concept of risk as
Correct Ans-Negative
Which one of the following statements is true regarding the evolution of risk and risk
management? Correct Ans-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 Ans-
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 Ans-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.
, ARM 54 Practice Exam with Complete Solutions
To an insured organization, which one of the following is an example of a cost of risk
associated with an asset or activity? Correct Ans-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 Ans-Systemic risk
Which one of the following risk management program goals enhances an organization's
reputation? Correct Ans-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 Ans-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 Ans-Operate economically and efficiently
Which one of the following is essential to an effective risk management program? Correct
Ans-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 Ans-Exposure
