ARM 402 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
1. Risk Treatment
Answer:
The selection and implementation of actions to help manage or mitigate a risk.
Question:
2. Residual Risk
Answer:
The level of risk remaining after actions are taken to alter the level of risk.
Question:
3. 5 common ways risk managers treat risk
Answer:
Avoidance, modification, transfer, retention, or (for opportunities) exploitation.
Question:
4. Risk Avoidance
Answer:
A risk control technique that involves ceasing or never undertaking an activity so
that the possibility of a future loss occurring from that activity is eliminated.
Question:
5. Prouty Approach
Answer:
identifies four broad categories of loss frequency and three broad categories of
loss severity
Question:
6. Prouty's 3 categories of loss severity
Answer:
1) slight- losses that can be retained easily
2) significant- part of the loss must be transferred
3) severe- the organization's survival depends on the transfer of loss
,Question:
7. Prouty's 4 categories of loss frequency
Answer:
1) Almost nil- extremely unlikely to occur
2) Slight- could occur, but hasn't
3) Moderate- occurs occasionally
4) Definite- occurs regularly
Question:
8. Risk Modification
Answer:
A process to increase likelihood and/or consequences from positive or negative
outcome
Question:
9. Risk Transfer
Answer:
buying insurance to shift the risk of financial loss to an insurance company -
transferring the risk to another party (budgeting for the cost)
Question:
10. Risk Retention
Answer:
accepting that some risks simply arise in the course of one's life and consciously
retaining that risk - assumption of risk in which gains and losses are retained within
the organization
Question:
11. Risk exploitation
Answer:
A risk management strategy for making a positive uncertainty more likely to occur
Question:
12. Risk Financing
Answer:
refers to techniques that provide for payment of losses after they occur
, Question:
13. Duplication
Answer:
risk retention and modification technique that creates backups of exposure units
(duplication/separation/diversification are all techniques) - Creating copies of
asset so if the primary asset is threatened the organization will still have the
data/use available - good for files/documents
Question:
14. Separation
Answer:
Mitigating and retention that physically divides so the asset or activity isn't all
impacted at once
Question:
15. Hedging
Answer:
A financial transaction in which one asset is held to offset the risk associated with
another asset.
Question:
16. credit derivatives
Answer:
derivatives used to reduce a lender's exposure to credit risk by a 3rd party for a
fee
Question:
17. Diversification
Answer:
A risk control technique that spreads loss exposures over numerous projects,
products, markets, or regions
Question:
18. Holistic risk management
Answer:
Manages risk across all levels and functions within an organization presents a
more complete picture of an organization's risk portfolio and profile. Allows for
better decisions and improved outcomes for senior management. Also uses
available resources as efficiently as possible to maximize outcomes.
CORRECT ANSWERS
Question:
1. Risk Treatment
Answer:
The selection and implementation of actions to help manage or mitigate a risk.
Question:
2. Residual Risk
Answer:
The level of risk remaining after actions are taken to alter the level of risk.
Question:
3. 5 common ways risk managers treat risk
Answer:
Avoidance, modification, transfer, retention, or (for opportunities) exploitation.
Question:
4. Risk Avoidance
Answer:
A risk control technique that involves ceasing or never undertaking an activity so
that the possibility of a future loss occurring from that activity is eliminated.
Question:
5. Prouty Approach
Answer:
identifies four broad categories of loss frequency and three broad categories of
loss severity
Question:
6. Prouty's 3 categories of loss severity
Answer:
1) slight- losses that can be retained easily
2) significant- part of the loss must be transferred
3) severe- the organization's survival depends on the transfer of loss
,Question:
7. Prouty's 4 categories of loss frequency
Answer:
1) Almost nil- extremely unlikely to occur
2) Slight- could occur, but hasn't
3) Moderate- occurs occasionally
4) Definite- occurs regularly
Question:
8. Risk Modification
Answer:
A process to increase likelihood and/or consequences from positive or negative
outcome
Question:
9. Risk Transfer
Answer:
buying insurance to shift the risk of financial loss to an insurance company -
transferring the risk to another party (budgeting for the cost)
Question:
10. Risk Retention
Answer:
accepting that some risks simply arise in the course of one's life and consciously
retaining that risk - assumption of risk in which gains and losses are retained within
the organization
Question:
11. Risk exploitation
Answer:
A risk management strategy for making a positive uncertainty more likely to occur
Question:
12. Risk Financing
Answer:
refers to techniques that provide for payment of losses after they occur
, Question:
13. Duplication
Answer:
risk retention and modification technique that creates backups of exposure units
(duplication/separation/diversification are all techniques) - Creating copies of
asset so if the primary asset is threatened the organization will still have the
data/use available - good for files/documents
Question:
14. Separation
Answer:
Mitigating and retention that physically divides so the asset or activity isn't all
impacted at once
Question:
15. Hedging
Answer:
A financial transaction in which one asset is held to offset the risk associated with
another asset.
Question:
16. credit derivatives
Answer:
derivatives used to reduce a lender's exposure to credit risk by a 3rd party for a
fee
Question:
17. Diversification
Answer:
A risk control technique that spreads loss exposures over numerous projects,
products, markets, or regions
Question:
18. Holistic risk management
Answer:
Manages risk across all levels and functions within an organization presents a
more complete picture of an organization's risk portfolio and profile. Allows for
better decisions and improved outcomes for senior management. Also uses
available resources as efficiently as possible to maximize outcomes.
