ARM 402: Study Sets Section 3 – Questions/Solutions
Operational Risk Right Ans - Any possibility of loss arising from people,
processes, systems, or external events; should be evaluated based on each
orgs strategic objectives, risk appetite, and risk tolerance
Internal Controls Right Ans - Help ensure that an organization's methods,
processes, and systems support organizational objectives and limit
operational risks where possible; assumes a prominent role in preventing
losses that are uninsurable or otherwise ineligible for risk transfer; must be
accompanied by strong control environment; accountability starts with
policies and procedures that define employee responsibilities
Management Controls Right Ans - Coordinate resource allocation, motive
performance, and measure outcomes
Applying Internal Controls to Operational Risk Right Ans - systems are
often designed by the managers of the areas in which they will be put to use;
may include preventive controls and/or detective controls
Common Types of Controls Right Ans - -approvals and authorizations (P)
-reconciliations (D)
-segregation of duties (P)
-safeguarding assets (P/D)
Operational Risks - IT Right Ans - -reputational and financial risks
presented by corruption/theft of customer data
-failing hardware, buggy software, critical infrastructure failures
-phishing attacks
-arise out of upgrading virus protection software
-project backlog
IT Operational Risk Classifications Right Ans - -security
-availability
-performance
-compliance
Scenario Analysis Right Ans - provides an opportunity for an organization
to simulate IT-related scenarios and gauge how prepared the org is to deal
, with related risks; should be designed to hep risk professionals ask questions
that will lead to the identification and assessment of operation risks facing an
org
Insurance Securitization Right Ans - Involves 3 Factors:
-the org transferring risk
-investors who take on the risk
-special purpose vehicle (SPV): acts as an insurer/ reinsurer
Parametric Trigger Right Ans - A measurement that determines the value
of an insurance-related capital market product based on a parameter that isn't
within the control of the org transferring the risk; link the execution of a
contract to a predetermined parameter or metric related to the subject of the
contract, often through blockchain
Parametric Contracts Right Ans - Allow coverage for events that may
otherwise not be insurable
Parametric Financing Right Ans - can help alleviate possible losses that
result from operational risk; African Risk Capacity
Derivative Right Ans - A financial contract that derives its value from the
performance of another asset, such as a commodity, or that can derive its
value from the yields on another asset or the level of an index, such as the
Standard & Poor's 500 Stock Index; 3 major categories:
-forwards/ futures contracts
-options
-swaps
Forwards Right Ans - simplest form of derivative for financial risk
management;
Futures Right Ans - a forward contract that is exchange-traded and
therefore standardized , openly available and transferable
Options Right Ans - Available for stocks, commodities, foreign exchange
rates, and other traded securities; the holder of the ______________ has the right
(not obligation) to buy or sell the associated asset for a specific price (strike
price)
Operational Risk Right Ans - Any possibility of loss arising from people,
processes, systems, or external events; should be evaluated based on each
orgs strategic objectives, risk appetite, and risk tolerance
Internal Controls Right Ans - Help ensure that an organization's methods,
processes, and systems support organizational objectives and limit
operational risks where possible; assumes a prominent role in preventing
losses that are uninsurable or otherwise ineligible for risk transfer; must be
accompanied by strong control environment; accountability starts with
policies and procedures that define employee responsibilities
Management Controls Right Ans - Coordinate resource allocation, motive
performance, and measure outcomes
Applying Internal Controls to Operational Risk Right Ans - systems are
often designed by the managers of the areas in which they will be put to use;
may include preventive controls and/or detective controls
Common Types of Controls Right Ans - -approvals and authorizations (P)
-reconciliations (D)
-segregation of duties (P)
-safeguarding assets (P/D)
Operational Risks - IT Right Ans - -reputational and financial risks
presented by corruption/theft of customer data
-failing hardware, buggy software, critical infrastructure failures
-phishing attacks
-arise out of upgrading virus protection software
-project backlog
IT Operational Risk Classifications Right Ans - -security
-availability
-performance
-compliance
Scenario Analysis Right Ans - provides an opportunity for an organization
to simulate IT-related scenarios and gauge how prepared the org is to deal
, with related risks; should be designed to hep risk professionals ask questions
that will lead to the identification and assessment of operation risks facing an
org
Insurance Securitization Right Ans - Involves 3 Factors:
-the org transferring risk
-investors who take on the risk
-special purpose vehicle (SPV): acts as an insurer/ reinsurer
Parametric Trigger Right Ans - A measurement that determines the value
of an insurance-related capital market product based on a parameter that isn't
within the control of the org transferring the risk; link the execution of a
contract to a predetermined parameter or metric related to the subject of the
contract, often through blockchain
Parametric Contracts Right Ans - Allow coverage for events that may
otherwise not be insurable
Parametric Financing Right Ans - can help alleviate possible losses that
result from operational risk; African Risk Capacity
Derivative Right Ans - A financial contract that derives its value from the
performance of another asset, such as a commodity, or that can derive its
value from the yields on another asset or the level of an index, such as the
Standard & Poor's 500 Stock Index; 3 major categories:
-forwards/ futures contracts
-options
-swaps
Forwards Right Ans - simplest form of derivative for financial risk
management;
Futures Right Ans - a forward contract that is exchange-traded and
therefore standardized , openly available and transferable
Options Right Ans - Available for stocks, commodities, foreign exchange
rates, and other traded securities; the holder of the ______________ has the right
(not obligation) to buy or sell the associated asset for a specific price (strike
price)
