ARM 54 practice questions with Verified Answers
The structure that supports the organization's risk management objectives and strategies is
the Correct Ans-risk management framework
Integration of the management principles governing the organization with the risk
management process is Correct Ans-risk governance
Be-Ne-Lux Insurance is an insurer operating in Belgium, the Netherlands, and Luxembourg.
Be-Ne-Lux is subject to the Solvency II standards. Company managers believed the company
was adequately financed, however it was determined that the company did not have
adequate assets based on the uncertainty of its operating performance. The standard that Be-
Ne-Lux failed to meet is Correct Ans-risk-based capital
Which one of the following is a characteristic that differentiates big data from traditional
data? Correct Ans-velocity
A predictive approach to data analytics involves Correct Ans-Providing a method to be
used repeatedly to provide information.
In the context of a predictive model, a true positive results when the model Correct Ans-
Correctly predicts a positive.
The descriptive approach is applied Correct Ans-When an insurer or risk manager has a
specific problem.
, ARM 54 practice questions with Verified Answers
Soy Products Company (SPC) makes a no-fat cheese substitute using soy beans. SPC signed a
contract to deliver 100,000 pounds of soy cheese to a chain of health food stores in six
months. The health food stores will pay SPC $2.50 per pound of cheese. SPC believes it will
need 5,000 bushels of soy beans to produce the cheese. While soy beans currently sell for $10
per bushel, SPC will not purchase the soy beans it needs until three months before delivery of
the product. SPC purchased a call option that will allow the company to purchase 5,000
bushels of soy beans at $10 per bushel three months before delivery. Three months before
delivery, the price of soybeans had increased to $12 per bushel. Ignoring the cost of the
option, how much in production costs did SPC save by hedging the price of the soy beans it
needed to fulfill its contract? Correct Ans-$10,000
Garnett owns a commercial building and has a lease with a tenant which calls for rental
payments to increase annually. To evaluate the lease, she wants to determine the present
value of the building's income and then compare that to her costs. The first year's rent is set
at $10,000, the second year is $15,000, third year is $20,000, and the 4th year is $25,000.
Payments are made on the first day of each year. Assuming a 5% interest rate, the present
value of the rental income as of the date of the first payment is Correct Ans-$64,021.
The recognition of expected accidental losses in cash flow analysis Correct Ans-May have a
significant effect on the decision to undertake a proposal.
Which one of the following is an element of a loss exposure? Correct Ans-a cause of a loss
General liability insurance Correct Ans-Covers the insured's legal defense costs when
defending against a claim of liability.
, ARM 54 practice questions with Verified Answers
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? Correct Ans-Direct physical loss, actual cash value coverage
Despite being frequently reminded otherwise, Laura was in the habit of leaving her car door
unlocked, often with her purse inside. As a result, Laura's car was stolen, along with her
purse. Laura's behavior is an example of a Correct Ans-Morale hazard.
Determining earnings-at-risk (EaR) entails modeling the influence of factors such as Correct
Ans-Changes in the prices of products and production costs on an organization's earnings.
The level of capital required to provide a cushion against unexpected loss of economic value
at a financial institution is known as Correct Ans-risk capital
Basel I and Basel II prescribe capital requirements for Correct Ans-financial institutions
Risk that is common to all securities of the same general class and cannot be eliminated
through diversification is called Correct Ans-Systematic risk.
, ARM 54 practice questions with Verified Answers
Insurance companies use a number of measures to track their operating performance. One
measure employed compares the amount the insurer has paid in losses to the premiums it
has earned. This measure is the insurer's Correct Ans-Loss ratio.
Blakely Company insures its fleet of vehicles under an auto policy with a $10,000 deductible
for auto physical damage losses. The estimated probability distribution for Blakely's auto
physical damage losses is shown below:
Based on this information, what is the probability that auto physical damage losses will be
within the $10,000 deductible? Correct Ans-82.5%
In a normal distribution 34.13% of all outcomes are within one standard deviation above the
mean. The portion between one and two standard deviations above the mean contains
13.59% of all outcomes. What percentage of the total outcomes is between two standard
deviations below the mean and two standard deviations above? Correct Ans-95.44%
Two of the most common applications of relative frequency measures in risk management are
injuries per person per hour in workers compensation and Correct Ans-Auto accidents per
mile driven.
To accurately determine its level of risk, an organization must examine the effectiveness of its
efforts to prevent losses from occurring and to reduce the severity of losses that do occur. An
organization's efforts in this area are called Correct Ans-Risk control.
The structure that supports the organization's risk management objectives and strategies is
the Correct Ans-risk management framework
Integration of the management principles governing the organization with the risk
management process is Correct Ans-risk governance
Be-Ne-Lux Insurance is an insurer operating in Belgium, the Netherlands, and Luxembourg.
Be-Ne-Lux is subject to the Solvency II standards. Company managers believed the company
was adequately financed, however it was determined that the company did not have
adequate assets based on the uncertainty of its operating performance. The standard that Be-
Ne-Lux failed to meet is Correct Ans-risk-based capital
Which one of the following is a characteristic that differentiates big data from traditional
data? Correct Ans-velocity
A predictive approach to data analytics involves Correct Ans-Providing a method to be
used repeatedly to provide information.
In the context of a predictive model, a true positive results when the model Correct Ans-
Correctly predicts a positive.
The descriptive approach is applied Correct Ans-When an insurer or risk manager has a
specific problem.
, ARM 54 practice questions with Verified Answers
Soy Products Company (SPC) makes a no-fat cheese substitute using soy beans. SPC signed a
contract to deliver 100,000 pounds of soy cheese to a chain of health food stores in six
months. The health food stores will pay SPC $2.50 per pound of cheese. SPC believes it will
need 5,000 bushels of soy beans to produce the cheese. While soy beans currently sell for $10
per bushel, SPC will not purchase the soy beans it needs until three months before delivery of
the product. SPC purchased a call option that will allow the company to purchase 5,000
bushels of soy beans at $10 per bushel three months before delivery. Three months before
delivery, the price of soybeans had increased to $12 per bushel. Ignoring the cost of the
option, how much in production costs did SPC save by hedging the price of the soy beans it
needed to fulfill its contract? Correct Ans-$10,000
Garnett owns a commercial building and has a lease with a tenant which calls for rental
payments to increase annually. To evaluate the lease, she wants to determine the present
value of the building's income and then compare that to her costs. The first year's rent is set
at $10,000, the second year is $15,000, third year is $20,000, and the 4th year is $25,000.
Payments are made on the first day of each year. Assuming a 5% interest rate, the present
value of the rental income as of the date of the first payment is Correct Ans-$64,021.
The recognition of expected accidental losses in cash flow analysis Correct Ans-May have a
significant effect on the decision to undertake a proposal.
Which one of the following is an element of a loss exposure? Correct Ans-a cause of a loss
General liability insurance Correct Ans-Covers the insured's legal defense costs when
defending against a claim of liability.
, ARM 54 practice questions with Verified Answers
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? Correct Ans-Direct physical loss, actual cash value coverage
Despite being frequently reminded otherwise, Laura was in the habit of leaving her car door
unlocked, often with her purse inside. As a result, Laura's car was stolen, along with her
purse. Laura's behavior is an example of a Correct Ans-Morale hazard.
Determining earnings-at-risk (EaR) entails modeling the influence of factors such as Correct
Ans-Changes in the prices of products and production costs on an organization's earnings.
The level of capital required to provide a cushion against unexpected loss of economic value
at a financial institution is known as Correct Ans-risk capital
Basel I and Basel II prescribe capital requirements for Correct Ans-financial institutions
Risk that is common to all securities of the same general class and cannot be eliminated
through diversification is called Correct Ans-Systematic risk.
, ARM 54 practice questions with Verified Answers
Insurance companies use a number of measures to track their operating performance. One
measure employed compares the amount the insurer has paid in losses to the premiums it
has earned. This measure is the insurer's Correct Ans-Loss ratio.
Blakely Company insures its fleet of vehicles under an auto policy with a $10,000 deductible
for auto physical damage losses. The estimated probability distribution for Blakely's auto
physical damage losses is shown below:
Based on this information, what is the probability that auto physical damage losses will be
within the $10,000 deductible? Correct Ans-82.5%
In a normal distribution 34.13% of all outcomes are within one standard deviation above the
mean. The portion between one and two standard deviations above the mean contains
13.59% of all outcomes. What percentage of the total outcomes is between two standard
deviations below the mean and two standard deviations above? Correct Ans-95.44%
Two of the most common applications of relative frequency measures in risk management are
injuries per person per hour in workers compensation and Correct Ans-Auto accidents per
mile driven.
To accurately determine its level of risk, an organization must examine the effectiveness of its
efforts to prevent losses from occurring and to reduce the severity of losses that do occur. An
organization's efforts in this area are called Correct Ans-Risk control.
