CPCU 500 UPDATED FINALS EXAMS TIPS
QUESTIONS AND ANSWERS SURE A+
✔✔Systems Risk - ✔✔Risks related to the function of technology, including its
intentional or accidental failure and security issues. Data Breach, Equipment Failure
✔✔External Events - ✔✔Risks arising from occurrences outside the organization that
can impact its operations. Not always natural occurrences; ie the temporary or
permanent loss of a key supplier due to a fire, electrical power delays, or system
updates causing a pause on utilization
✔✔Financial Risks - ✔✔Financial risk can present itself in many ways, but the main
forms are market risks, credit risks, and price risks.
✔✔Market Risk (Financial Risks) - ✔✔Market risk is the risk that the value of an
investment or investment portfolio will decrease or increase because of changes in the
market for that investment.
✔✔Interest Rate Risk (Financial Risks: Market Risk) - ✔✔Uncertainty over the
movement of interest rates and the effect that has on the value of an investment and an
organization's assets or liabilities in either direction.
, ✔✔Exchange Rate Risk (Financial Risks: Market Risk) - ✔✔Exchange rate changes
can affect an organization's assets and liabilities value if the organization has cash flows
denominated in a foreign currency.
✔✔Liquidity Risk (Financial Risks: Market Risk) - ✔✔If an organization doesn't have
enough cash on hand to meet its financial requirements, it may be forced to sell assets
or holdings at a loss.
✔✔Credit Risk - ✔✔Credit risk relates to the uncertainty about a party that is obligated
to pay money per a binding agreement.
✔✔Price Risk - ✔✔Price risk relates to the uncertainty of accurately setting the price of
an organization's product.
✔✔Input Price Risk - ✔✔The uncertainty of the price of the resources used to produce
an organization's product.
✔✔Output Price Risk - ✔✔The uncertainty regarding the price an organization can
charge for its product.
✔✔Operational Risks - ✔✔Operational risks originate from the four general categories
of people, process, systems, and external events.
✔✔Financial Risk Classification - ✔✔Financial risk refers to the uncertainty about the
future investment returns of a given asset and can be classified as market risk, credit
risk, or price risk.
✔✔Market Risk Definition - ✔✔Uncertainty about an investment's future value because
of potential changes in the market for that type of investment.
✔✔Interest Rate Risk Definition - ✔✔The risk that a security's future value will decline
because of changes in interest rates.
✔✔Exchange Rate Risk Definition - ✔✔Uncertainty about an investment's value
because of potential changes in the exchange rate between currencies.
✔✔Liquidity Risk Definition - ✔✔The risk that an asset cannot be sold on short notice
without incurring a loss.
✔✔Credit Risk Definition - ✔✔The risk that customers or other creditors will fail to make
promised payments as they come due.
✔✔Price Risk Definition - ✔✔The potential for a change in revenue or cost because of
an increase or a decrease in the price of a product or an input.
QUESTIONS AND ANSWERS SURE A+
✔✔Systems Risk - ✔✔Risks related to the function of technology, including its
intentional or accidental failure and security issues. Data Breach, Equipment Failure
✔✔External Events - ✔✔Risks arising from occurrences outside the organization that
can impact its operations. Not always natural occurrences; ie the temporary or
permanent loss of a key supplier due to a fire, electrical power delays, or system
updates causing a pause on utilization
✔✔Financial Risks - ✔✔Financial risk can present itself in many ways, but the main
forms are market risks, credit risks, and price risks.
✔✔Market Risk (Financial Risks) - ✔✔Market risk is the risk that the value of an
investment or investment portfolio will decrease or increase because of changes in the
market for that investment.
✔✔Interest Rate Risk (Financial Risks: Market Risk) - ✔✔Uncertainty over the
movement of interest rates and the effect that has on the value of an investment and an
organization's assets or liabilities in either direction.
, ✔✔Exchange Rate Risk (Financial Risks: Market Risk) - ✔✔Exchange rate changes
can affect an organization's assets and liabilities value if the organization has cash flows
denominated in a foreign currency.
✔✔Liquidity Risk (Financial Risks: Market Risk) - ✔✔If an organization doesn't have
enough cash on hand to meet its financial requirements, it may be forced to sell assets
or holdings at a loss.
✔✔Credit Risk - ✔✔Credit risk relates to the uncertainty about a party that is obligated
to pay money per a binding agreement.
✔✔Price Risk - ✔✔Price risk relates to the uncertainty of accurately setting the price of
an organization's product.
✔✔Input Price Risk - ✔✔The uncertainty of the price of the resources used to produce
an organization's product.
✔✔Output Price Risk - ✔✔The uncertainty regarding the price an organization can
charge for its product.
✔✔Operational Risks - ✔✔Operational risks originate from the four general categories
of people, process, systems, and external events.
✔✔Financial Risk Classification - ✔✔Financial risk refers to the uncertainty about the
future investment returns of a given asset and can be classified as market risk, credit
risk, or price risk.
✔✔Market Risk Definition - ✔✔Uncertainty about an investment's future value because
of potential changes in the market for that type of investment.
✔✔Interest Rate Risk Definition - ✔✔The risk that a security's future value will decline
because of changes in interest rates.
✔✔Exchange Rate Risk Definition - ✔✔Uncertainty about an investment's value
because of potential changes in the exchange rate between currencies.
✔✔Liquidity Risk Definition - ✔✔The risk that an asset cannot be sold on short notice
without incurring a loss.
✔✔Credit Risk Definition - ✔✔The risk that customers or other creditors will fail to make
promised payments as they come due.
✔✔Price Risk Definition - ✔✔The potential for a change in revenue or cost because of
an increase or a decrease in the price of a product or an input.
