BUSFIN 4239 – Risk Management Exam 1, 2026 – Study
Material and Practice Questions
Frank Knight def. of Risk - correct answer ✔✔ Variability that can be quantified
Frank Knight def of Uncertainty - correct answer ✔✔ Variability that cannot be quantified at all
Engineering def of Risk - correct answer ✔✔ Risk= Probability (undesirable event) X
Consequence (in terms of harm)
only downside
Finance def of Risk - correct answer ✔✔ Risk = variability of outcomes around an expected
value
Upside and Downside
3 Components of Expected Outcome - correct answer ✔✔ Probability of the event occurring
Exposure given the event
Outcome given the event
Each driven by a fundamental set of risk factors
Unexpected Outcome - correct answer ✔✔ Extent to which an outcome departs from the
expected outcome level
Preventable Risks - correct answer ✔✔ Risks arising within the firm that generate NO strategic
benefits or shareholder value
, Strategy Risks - correct answer ✔✔ Risks taken that create strategic benefits and shareholder
value
External Risks - correct answer ✔✔ Risks outside the company that are beyond its influence
and/or control
Market Risk - correct answer ✔✔ Exposure to movements in the level or volatility of market
prices
Ex. FX, equity prices, commodity prices, and interest rates
Credit Risk - correct answer ✔✔ Exposure to borrowers and counterparties who may fail to
perform on their contractual obligations
Funding Liquidity Risks - correct answer ✔✔ Possibility that firm cannot access enough cash and
liquid assets to meet its obligations
Market Liquidity Risks - correct answer ✔✔ Risk to loss in asset value when markets "seize up"
Financial Risks - correct answer ✔✔ Market Risk
Credit Risk
Liquidity Risk
Operational Risk - correct answer ✔✔ Exposure to failures in people (HR), processes, systems,
and external events
Includes but not limited to digital disruptions, talent, and cyber attacks
Strategic Risk - correct answer ✔✔ Exposure to large long-term decisions about the firms
strategy/future/direction
Material and Practice Questions
Frank Knight def. of Risk - correct answer ✔✔ Variability that can be quantified
Frank Knight def of Uncertainty - correct answer ✔✔ Variability that cannot be quantified at all
Engineering def of Risk - correct answer ✔✔ Risk= Probability (undesirable event) X
Consequence (in terms of harm)
only downside
Finance def of Risk - correct answer ✔✔ Risk = variability of outcomes around an expected
value
Upside and Downside
3 Components of Expected Outcome - correct answer ✔✔ Probability of the event occurring
Exposure given the event
Outcome given the event
Each driven by a fundamental set of risk factors
Unexpected Outcome - correct answer ✔✔ Extent to which an outcome departs from the
expected outcome level
Preventable Risks - correct answer ✔✔ Risks arising within the firm that generate NO strategic
benefits or shareholder value
, Strategy Risks - correct answer ✔✔ Risks taken that create strategic benefits and shareholder
value
External Risks - correct answer ✔✔ Risks outside the company that are beyond its influence
and/or control
Market Risk - correct answer ✔✔ Exposure to movements in the level or volatility of market
prices
Ex. FX, equity prices, commodity prices, and interest rates
Credit Risk - correct answer ✔✔ Exposure to borrowers and counterparties who may fail to
perform on their contractual obligations
Funding Liquidity Risks - correct answer ✔✔ Possibility that firm cannot access enough cash and
liquid assets to meet its obligations
Market Liquidity Risks - correct answer ✔✔ Risk to loss in asset value when markets "seize up"
Financial Risks - correct answer ✔✔ Market Risk
Credit Risk
Liquidity Risk
Operational Risk - correct answer ✔✔ Exposure to failures in people (HR), processes, systems,
and external events
Includes but not limited to digital disruptions, talent, and cyber attacks
Strategic Risk - correct answer ✔✔ Exposure to large long-term decisions about the firms
strategy/future/direction
