Risk Management for the Firm Exam 2
The fundamental purpose of a risk management framework is to - ANSIntegrate risk
management throughout the organization
Information used as a basis for measuring the significance of a risk - ANSRisk Criteria
Paula just took over as risk manager of Agri-Products Company. The company produces
agricultural chemicals and buys and sells agricultural commodities. The previous risk
manager had attempted to institute an enterprise risk management program and failed. One
of Paula's first moves was to formulate a mission statement and a bullet-point list of the
organization's risk management philosophy. This clearly-stated list of objectives and
statements of how the objectives will be achieved is a - ANSRisk Management policy
statement
Carmen is the risk manager of Brighton Software Company (BSC). She was directed by the
president of the company to implement an enterprise risk management (ERM) program.
Carmen called a meeting of the lead person in Brighton's finance, safety, accounting, and
legal areas. She explained the concept of ERM at the meeting, and asked for cooperation.
After the meeting, she encountered resistance from these leaders. The chief financial officer
said, "Don't tell me how to do my job." The head of accounting said, "We've managed credit
risk just fine without your help, why don't you stick to insurance." The lack of cooperation,
despite repeated appeals, led to the failure of the ERM program. In this case, the
implementation of an ERM program was not successful because of - ANSFailure to integrate
the program with existing processes
Jack has recently been hired as a risk management professional for Blithe Corporation.
Blithe has a risk management program in place, but Jack has advised senior management
that he would like to design and implement a risk management framework and process
based on a recognized international standard. Which one of the following is the first step that
Jack should take in designing and implementing the new framework and process -
ANSPerform a gap analysis
Using existing processes is key to the successful integration of the risk management
framework and process. Using existing processes serves which one of the following
purposes - ANSreduces the usual resistance to change from introducing new procedures.
The president of Agricultural Products Company (APC) told the risk manager, Tom, to
implement an enterprise risk management (ERM) program. Tom was a "traditional" risk
manager who had managed APC's property, liability, and personnel-related risks for the last
12 years. Under the new plan, he was supposed to manage commodity price risk, currency
exchange rate risk, and strategic risk. When Tom asked for assistance (hiring an outside
expert, time to get up to speed on financial risk, etc.), his requests were denied. After six
months, the president declared the ERM program a failure and told Tom to revert to the
, previous risk management plan. APC's experiment with ERM was not successful because of
- ANSLack of commitment of resources
Risk management professionals should evaluate the internal and external environments in
which the organization operates. Which one of the following is a factor of an organization's
internal environment? - ANSRisk Appetite
Risk management professionals analyze loss exposures along four dimensions. Which one
of the following dimensions analyzes the number of losses within a specific time period? -
ANSLoss Frequency
Loss exposures are analyzed along these 4 dimensions - ANSLoss frequency, Loss severity,
Total dollar losses, Timing
Which one of the following statements is true about both the enterprise-wide risk
management process and the traditional risk management process? - ANSIt is a cyclical
process that provides for continuous improvement
A conscious act or decision not to act that reduces the frequency and severity of losses or
makes losses more predictable best defines - ANSRisk control
The traditional risk management approach views risk as having only which one of the
following types of consequences? - ANSNegative
Final step in the traditional risk management process - ANSMonitoring results and revising
the Risk Management program
Jancy Manufacturing has experienced an increase in employee injuries over the last three
years. Jancy's risk manager has met with the various stakeholders throughout the
organization and has the support of senior management to design and implement risk
management framework and process. Which one of the following individuals would be the
best person to communicate Jancy's commitment to risk management and employee safety?
- ANSChief Executive Officer
Elliott is the new risk manager of Consolidated Agriculture Products. The company has
corporate farms that grow grain in six Midwestern states. The company trades futures
contracts on grain and foreign currencies. In an effort to establish accountability in the
enterprise risk management program Elliott is implementing, he is using financial measures
to determine potential losses from property damage, liability claims, farming operations,
grain futures trading, currency futures trading, and each of the other loss exposures the
company faces. These metrics of potential losses are called - ANSKey Risk indicators
Myers Metal Company is a diversified organization with operations in the U.S., Europe,
South America, and Africa. The company operates mines, metal foundries, and steel plants.
The previous risk manager was fired and a new risk manager was just hired. The chief
executive officer, chief financial officer, and company controller met with the new risk
manager and asked her to design and implement an enterprise risk management (ERM)
program. At the meeting, both the CEO and CFO expressed concern about acceptance of
The fundamental purpose of a risk management framework is to - ANSIntegrate risk
management throughout the organization
Information used as a basis for measuring the significance of a risk - ANSRisk Criteria
Paula just took over as risk manager of Agri-Products Company. The company produces
agricultural chemicals and buys and sells agricultural commodities. The previous risk
manager had attempted to institute an enterprise risk management program and failed. One
of Paula's first moves was to formulate a mission statement and a bullet-point list of the
organization's risk management philosophy. This clearly-stated list of objectives and
statements of how the objectives will be achieved is a - ANSRisk Management policy
statement
Carmen is the risk manager of Brighton Software Company (BSC). She was directed by the
president of the company to implement an enterprise risk management (ERM) program.
Carmen called a meeting of the lead person in Brighton's finance, safety, accounting, and
legal areas. She explained the concept of ERM at the meeting, and asked for cooperation.
After the meeting, she encountered resistance from these leaders. The chief financial officer
said, "Don't tell me how to do my job." The head of accounting said, "We've managed credit
risk just fine without your help, why don't you stick to insurance." The lack of cooperation,
despite repeated appeals, led to the failure of the ERM program. In this case, the
implementation of an ERM program was not successful because of - ANSFailure to integrate
the program with existing processes
Jack has recently been hired as a risk management professional for Blithe Corporation.
Blithe has a risk management program in place, but Jack has advised senior management
that he would like to design and implement a risk management framework and process
based on a recognized international standard. Which one of the following is the first step that
Jack should take in designing and implementing the new framework and process -
ANSPerform a gap analysis
Using existing processes is key to the successful integration of the risk management
framework and process. Using existing processes serves which one of the following
purposes - ANSreduces the usual resistance to change from introducing new procedures.
The president of Agricultural Products Company (APC) told the risk manager, Tom, to
implement an enterprise risk management (ERM) program. Tom was a "traditional" risk
manager who had managed APC's property, liability, and personnel-related risks for the last
12 years. Under the new plan, he was supposed to manage commodity price risk, currency
exchange rate risk, and strategic risk. When Tom asked for assistance (hiring an outside
expert, time to get up to speed on financial risk, etc.), his requests were denied. After six
months, the president declared the ERM program a failure and told Tom to revert to the
, previous risk management plan. APC's experiment with ERM was not successful because of
- ANSLack of commitment of resources
Risk management professionals should evaluate the internal and external environments in
which the organization operates. Which one of the following is a factor of an organization's
internal environment? - ANSRisk Appetite
Risk management professionals analyze loss exposures along four dimensions. Which one
of the following dimensions analyzes the number of losses within a specific time period? -
ANSLoss Frequency
Loss exposures are analyzed along these 4 dimensions - ANSLoss frequency, Loss severity,
Total dollar losses, Timing
Which one of the following statements is true about both the enterprise-wide risk
management process and the traditional risk management process? - ANSIt is a cyclical
process that provides for continuous improvement
A conscious act or decision not to act that reduces the frequency and severity of losses or
makes losses more predictable best defines - ANSRisk control
The traditional risk management approach views risk as having only which one of the
following types of consequences? - ANSNegative
Final step in the traditional risk management process - ANSMonitoring results and revising
the Risk Management program
Jancy Manufacturing has experienced an increase in employee injuries over the last three
years. Jancy's risk manager has met with the various stakeholders throughout the
organization and has the support of senior management to design and implement risk
management framework and process. Which one of the following individuals would be the
best person to communicate Jancy's commitment to risk management and employee safety?
- ANSChief Executive Officer
Elliott is the new risk manager of Consolidated Agriculture Products. The company has
corporate farms that grow grain in six Midwestern states. The company trades futures
contracts on grain and foreign currencies. In an effort to establish accountability in the
enterprise risk management program Elliott is implementing, he is using financial measures
to determine potential losses from property damage, liability claims, farming operations,
grain futures trading, currency futures trading, and each of the other loss exposures the
company faces. These metrics of potential losses are called - ANSKey Risk indicators
Myers Metal Company is a diversified organization with operations in the U.S., Europe,
South America, and Africa. The company operates mines, metal foundries, and steel plants.
The previous risk manager was fired and a new risk manager was just hired. The chief
executive officer, chief financial officer, and company controller met with the new risk
manager and asked her to design and implement an enterprise risk management (ERM)
program. At the meeting, both the CEO and CFO expressed concern about acceptance of
