RISK MANAGEMENT FINANCIAL AND OPERATIONAL RISK ASSESSMENT SCRIPT PAPER QUESTIONS ANSWERS AUDIT AND MONITORING REVIEW 2026

RISK MANAGEMENT FINANCIAL AND
OPERATIONAL RISK ASSESSMENT SCRIPT
PAPER QUESTIONS ANSWERS AUDIT AND
MONITORING REVIEW 2026

◉ Morale hazard
Answer: Hazard resulting from carelessness or indifference to
losses. Insurance isn't required.


◉ Cost of residual uncertainty
Answer: Not producing goods that require dangerous labor
Charging higher price due to safety and loss of customers


◉ Measurement of pure risk
Answer: Individual attitudes towards situation involving risk
Difficult to compare among individuals


◉ Risk attitudes
Answer: Risk averse (very insured) and risk seeking (like risk)


◉ Favorable bet

,Answer: Risk seeking (all), risk averse (some), risk neutral (all)


◉ Unfavorable bet
Answer: Risk seeking (some), risk averse (none), risk neutral (none)


◉ Objective measurements of risk
Answer: Actual losses and Expected losses


◉ AL< EL
Answer: Good deviation


◉ AL>EL
Answer: Bad deviation


◉ AL=EL
Answer: No deviation


◉ Measurement of risk (how off were you)
Answer: (AL-EL)/EL


◉ Utility
Answer: How happy we are about outcomes

, ◉ Marginal utility
Answer: How much happier to use the next dollar


◉ Diminishing MU
Answer: As our wealth increases our marginal utility decreases


◉ CE(a)
Answer: Willing to pay up to certain equivalent to get rid of risk


◉ Risk premium
Answer: =E(a)-CE(a)


◉ Insurer
Answer: always charge more than CE(a)
Charge (a)+"loading" overhaul monetary profit-risk premium (weird
L looking shape)


◉ Coeffecient of absolute risk aversion
Answer: r=U"/U'


◉ Expected Utility Function