Associate in Risk Management (ARM) Exam
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1. Which statement best describes the primary objective of risk
management?
A. Eliminate every possible source of uncertainty
B. Maximize insurance purchases regardless of cost
C. Identify and manage uncertainty in a way that supports
organizational objectives
D. Transfer all organizational risks to third parties
Rationale: Risk management is concerned with understanding
uncertainty and making informed decisions about how risks should be
treated. The goal is not to eliminate every risk, but to manage risks in
a manner consistent with the organization’s objectives, resources, and
risk tolerance.
, 2. Which of the following is generally considered a fundamental
component of the risk management process?
A. Ignoring low-frequency events
B. Risk identification
C. Eliminating all retained risks
D. Purchasing insurance before analyzing exposures
Rationale: Risk identification is an essential early step in risk
management. An organization must understand what could cause loss
or prevent it from achieving its objectives before it can appropriately
analyze, control, finance, or monitor those risks.
3. A risk that could result in a financial loss because of damage to an
organization's building is best classified as:
A. Speculative risk
B. Strategic opportunity
C. Pure risk
D. Investment risk
Rationale: Pure risk involves situations in which there is a possibility of
loss but no possibility of gain from the occurrence of the event.
Property damage is a common example of pure risk.
4. Which situation is an example of speculative risk?
,A. A warehouse fire
B. An employee injury
C. Theft of company equipment
D. An investment that could produce either a profit or a loss
Rationale: Speculative risk involves the possibility of gain, loss, or no
change. Investments, entrepreneurial decisions, and certain business
ventures commonly involve speculative risk.
5. What is a peril?
A. A condition that increases the likelihood of loss
B. A financial method for paying losses
C. A cause of loss
D. A method of transferring risk
Rationale: A peril is the cause of a loss. Examples include fire, theft,
collision, and certain natural events. A hazard, by contrast, is a
condition that increases the likelihood or severity of a loss.
6. Which of the following is the best example of a physical hazard?
A. An employee intentionally falsifying records
B. An employee's careless attitude
C. A defective electrical system in a building
D. A company's willingness to accept large losses
, Rationale: A physical hazard is a tangible condition that increases the
probability or severity of loss. A defective electrical system can
increase the likelihood of fire and therefore represents a physical
hazard.
7. An employee's careless attitude toward workplace safety is an
example of which type of hazard?
A. Physical hazard
B. Legal hazard
C. Morale hazard
D. Market hazard
Rationale: A morale hazard involves careless behavior because a
person feels protected from the consequences of loss. For example, an
employee may disregard safety procedures because the organization
bears the financial consequences of an accident.
8. Which statement best describes a moral hazard?
A. A building contains combustible materials
B. A person intentionally creates or increases a loss opportunity for
personal benefit
C. An organization experiences an unexpected market decline
D. A machine requires preventive maintenance
Questions and Correct Answers (Verified
Answers) Plus Rationale 2027 Q&A| Instant
Download Pdf
1. Which statement best describes the primary objective of risk
management?
A. Eliminate every possible source of uncertainty
B. Maximize insurance purchases regardless of cost
C. Identify and manage uncertainty in a way that supports
organizational objectives
D. Transfer all organizational risks to third parties
Rationale: Risk management is concerned with understanding
uncertainty and making informed decisions about how risks should be
treated. The goal is not to eliminate every risk, but to manage risks in
a manner consistent with the organization’s objectives, resources, and
risk tolerance.
, 2. Which of the following is generally considered a fundamental
component of the risk management process?
A. Ignoring low-frequency events
B. Risk identification
C. Eliminating all retained risks
D. Purchasing insurance before analyzing exposures
Rationale: Risk identification is an essential early step in risk
management. An organization must understand what could cause loss
or prevent it from achieving its objectives before it can appropriately
analyze, control, finance, or monitor those risks.
3. A risk that could result in a financial loss because of damage to an
organization's building is best classified as:
A. Speculative risk
B. Strategic opportunity
C. Pure risk
D. Investment risk
Rationale: Pure risk involves situations in which there is a possibility of
loss but no possibility of gain from the occurrence of the event.
Property damage is a common example of pure risk.
4. Which situation is an example of speculative risk?
,A. A warehouse fire
B. An employee injury
C. Theft of company equipment
D. An investment that could produce either a profit or a loss
Rationale: Speculative risk involves the possibility of gain, loss, or no
change. Investments, entrepreneurial decisions, and certain business
ventures commonly involve speculative risk.
5. What is a peril?
A. A condition that increases the likelihood of loss
B. A financial method for paying losses
C. A cause of loss
D. A method of transferring risk
Rationale: A peril is the cause of a loss. Examples include fire, theft,
collision, and certain natural events. A hazard, by contrast, is a
condition that increases the likelihood or severity of a loss.
6. Which of the following is the best example of a physical hazard?
A. An employee intentionally falsifying records
B. An employee's careless attitude
C. A defective electrical system in a building
D. A company's willingness to accept large losses
, Rationale: A physical hazard is a tangible condition that increases the
probability or severity of loss. A defective electrical system can
increase the likelihood of fire and therefore represents a physical
hazard.
7. An employee's careless attitude toward workplace safety is an
example of which type of hazard?
A. Physical hazard
B. Legal hazard
C. Morale hazard
D. Market hazard
Rationale: A morale hazard involves careless behavior because a
person feels protected from the consequences of loss. For example, an
employee may disregard safety procedures because the organization
bears the financial consequences of an accident.
8. Which statement best describes a moral hazard?
A. A building contains combustible materials
B. A person intentionally creates or increases a loss opportunity for
personal benefit
C. An organization experiences an unexpected market decline
D. A machine requires preventive maintenance
