ARM 402 Exam Practice
Telematics devices allow organizations to accurately identify patterns of risk and predict risk for which
one of the following types of loss exposures?
A. Automobile
B. Property
C. Workers compensation
D. Business income - answ- A
Which one of the following is a major benefit that smart insurance contracts can provide to insurance
customers?
A. Smart contracts can render a risk completely preventable.
B. Smart contracts can provide broader coverage at a lower cost.
C. Smart contracts can dramatically increase the speed of loss payments.
D. Smart contracts can significantly increase the speed of premium payments. - answ- C
Maxwell Company has just invested a large sum in new, highly-sophisticated computer equipment and
building renovations. Maxwell arranged to lease identical equipment at another location so that it could
use the equipment in the event of a disaster at its location. Maxwell's lease of identical equipment at
another location is an example of
A. Duplication.
B. Separation.
C. Loss reduction.
D. Diversification. - answ- A
Olivia is planning a meeting to explain a new cyber security procedure. She expects that the meeting will
be impeded by hidden agendas. Which one of the following is the best way for Olivia to deal with
potential hidden agendas?
A. Olivia should refuse to take questions during her meeting, and request that any questions be
forwarded to her in writing after the meeting.
,B. Olivia should start the meeting by stating that she does not expect everyone like the new procedure,
but they must accept it.
C. Olivia should start the meeting by asking participants to state their concerns or feeling about the
procedure.
D. Olivia should hold a separate meeting for those individuals who she suspects have a hidden agenda. -
answ- C
Which one of the following is a common problem with meetings that leaders should try to avoid?
A. Trying to stick to an agenda and avoid interruptions
B. Committing to an end time, as well as a start time
C. Having the wrong people attend
D. Stating the objective in writing before the meeting - answ- C
Which one of the following statements about correlation and covariance is true?
A. Covariance is a scaled version of correlation and ranges from -1 to +1.
B. The correlation between variables ranges from 0 to +1.
C. Covariance measures the extent to which variables move together or independently.
D. Correlation measures causality. - answ- C
Once a holistic risk management program is created and put into effect, which one of the following
methods can be used to allow constant and consistent monitoring of the process?
A. Bow-tie diagram
B. Feedback loop
C. Dashboard reporting
D. SWOT analysis - answ- B
A risk control technique that reduces the frequency of a particular loss is
A. Loss prevention.
B. Loss reduction.
C. Diversification.
,D. Duplication. - answ- A
Ivanhoe Corporation purchases stock in a bank and in a pharmaceutical manufacturer. Because these are
unrelated industries, Ivanhoe hope that any losses in one stock will be more than offset by profits in
another. Ivanhoe is using which one of the following risk management techniques?
A. Risk transfer
B. Duplication
C. Diversification
D. Separation - answ- C
Pacific Bar and Grill was having a problem with employees slipping and falling in the kitchen and bar
areas. Rather than incur the cost to replace the floors with a new non-slip surface, the owners decided
to require employees to wear slip-resistant shoes and monitor the floors for spills on a regular schedule.
They are also keeping track of the number of employee slips and falls and the associated costs, as well
as, the expenses involved with this risk management program. Which one of the following methods is
Pacific Bar and Grill using to measure the effectiveness of this risk management process?
A. Dashboard reporting
B. Feedback loop
C. Scorecard
D. Bow-tie diagram - answ- B
Ed is investment manager of the Nellor Foundation, a charitable trust. Recently, Ed met with the
president of the Foundation. Up until now, assets have been invested in financial assets. Ed told the
president that after performing a simulation, he would like to add a high-yielding, higher risk real estate
investment to the portfolio. When the president asked if it would be too risky, Ed replied, "It will actually
increase expected returns while reducing risk." The purported reduction in risk occurs because
A. The real estate investment will not be large enough to significantly impact on the portfolio.
B. Rental income generated by the real estate investment is not taxable.
C. Taxes on real estate investments may be deferred.
D. The real estate investment returns are negatively correlated with the other assets. - answ- D
Which one of the following risk control techniques is generally used to reduce the frequency of a
particular loss?
, A. Separation
B. Loss reduction
C. Avoidance
D. Loss prevention - answ- D
Which one of the following statements regarding correlation analysis is true?
A. Because it incorporates so much data, a risk professional can rely on correlation analysis only when
making a major decision.
B. Abnormal observations and inaccurate data may skew correlation analysis.
C. The range of correlation coefficients is from 0 to +1.
D. Correlation analysis can indicate causality between variables. - answ- B
When organizations invest their assets among a mix of stocks and bonds from companies in different
industry sectors they are using the risk management technique of
A. Diversification.
B. Duplication.
C. Risk transfer.
D. Separation. - answ- A
Diversification is a risk control technique that
A. Spreads loss exposures over numerous projects, products, markets, or regions.
B. Views the cause of accidents to be a result of business concentration and vertical integration.
C. Produces a copy or backup and keeps it in reserve.
D. Divides an asset or operation into two or more separate units. - answ- A
Victor is the risk manager for Jones Incorporated. He decided that a bow-tie diagram would be the best
method to convey a potential risk to the executive team. Victor will use the bow-tie diagram to do which
one of the following?
A. To provide the team with all of the information it needs to know about the risk within a very brief
period of time
Telematics devices allow organizations to accurately identify patterns of risk and predict risk for which
one of the following types of loss exposures?
A. Automobile
B. Property
C. Workers compensation
D. Business income - answ- A
Which one of the following is a major benefit that smart insurance contracts can provide to insurance
customers?
A. Smart contracts can render a risk completely preventable.
B. Smart contracts can provide broader coverage at a lower cost.
C. Smart contracts can dramatically increase the speed of loss payments.
D. Smart contracts can significantly increase the speed of premium payments. - answ- C
Maxwell Company has just invested a large sum in new, highly-sophisticated computer equipment and
building renovations. Maxwell arranged to lease identical equipment at another location so that it could
use the equipment in the event of a disaster at its location. Maxwell's lease of identical equipment at
another location is an example of
A. Duplication.
B. Separation.
C. Loss reduction.
D. Diversification. - answ- A
Olivia is planning a meeting to explain a new cyber security procedure. She expects that the meeting will
be impeded by hidden agendas. Which one of the following is the best way for Olivia to deal with
potential hidden agendas?
A. Olivia should refuse to take questions during her meeting, and request that any questions be
forwarded to her in writing after the meeting.
,B. Olivia should start the meeting by stating that she does not expect everyone like the new procedure,
but they must accept it.
C. Olivia should start the meeting by asking participants to state their concerns or feeling about the
procedure.
D. Olivia should hold a separate meeting for those individuals who she suspects have a hidden agenda. -
answ- C
Which one of the following is a common problem with meetings that leaders should try to avoid?
A. Trying to stick to an agenda and avoid interruptions
B. Committing to an end time, as well as a start time
C. Having the wrong people attend
D. Stating the objective in writing before the meeting - answ- C
Which one of the following statements about correlation and covariance is true?
A. Covariance is a scaled version of correlation and ranges from -1 to +1.
B. The correlation between variables ranges from 0 to +1.
C. Covariance measures the extent to which variables move together or independently.
D. Correlation measures causality. - answ- C
Once a holistic risk management program is created and put into effect, which one of the following
methods can be used to allow constant and consistent monitoring of the process?
A. Bow-tie diagram
B. Feedback loop
C. Dashboard reporting
D. SWOT analysis - answ- B
A risk control technique that reduces the frequency of a particular loss is
A. Loss prevention.
B. Loss reduction.
C. Diversification.
,D. Duplication. - answ- A
Ivanhoe Corporation purchases stock in a bank and in a pharmaceutical manufacturer. Because these are
unrelated industries, Ivanhoe hope that any losses in one stock will be more than offset by profits in
another. Ivanhoe is using which one of the following risk management techniques?
A. Risk transfer
B. Duplication
C. Diversification
D. Separation - answ- C
Pacific Bar and Grill was having a problem with employees slipping and falling in the kitchen and bar
areas. Rather than incur the cost to replace the floors with a new non-slip surface, the owners decided
to require employees to wear slip-resistant shoes and monitor the floors for spills on a regular schedule.
They are also keeping track of the number of employee slips and falls and the associated costs, as well
as, the expenses involved with this risk management program. Which one of the following methods is
Pacific Bar and Grill using to measure the effectiveness of this risk management process?
A. Dashboard reporting
B. Feedback loop
C. Scorecard
D. Bow-tie diagram - answ- B
Ed is investment manager of the Nellor Foundation, a charitable trust. Recently, Ed met with the
president of the Foundation. Up until now, assets have been invested in financial assets. Ed told the
president that after performing a simulation, he would like to add a high-yielding, higher risk real estate
investment to the portfolio. When the president asked if it would be too risky, Ed replied, "It will actually
increase expected returns while reducing risk." The purported reduction in risk occurs because
A. The real estate investment will not be large enough to significantly impact on the portfolio.
B. Rental income generated by the real estate investment is not taxable.
C. Taxes on real estate investments may be deferred.
D. The real estate investment returns are negatively correlated with the other assets. - answ- D
Which one of the following risk control techniques is generally used to reduce the frequency of a
particular loss?
, A. Separation
B. Loss reduction
C. Avoidance
D. Loss prevention - answ- D
Which one of the following statements regarding correlation analysis is true?
A. Because it incorporates so much data, a risk professional can rely on correlation analysis only when
making a major decision.
B. Abnormal observations and inaccurate data may skew correlation analysis.
C. The range of correlation coefficients is from 0 to +1.
D. Correlation analysis can indicate causality between variables. - answ- B
When organizations invest their assets among a mix of stocks and bonds from companies in different
industry sectors they are using the risk management technique of
A. Diversification.
B. Duplication.
C. Risk transfer.
D. Separation. - answ- A
Diversification is a risk control technique that
A. Spreads loss exposures over numerous projects, products, markets, or regions.
B. Views the cause of accidents to be a result of business concentration and vertical integration.
C. Produces a copy or backup and keeps it in reserve.
D. Divides an asset or operation into two or more separate units. - answ- A
Victor is the risk manager for Jones Incorporated. He decided that a bow-tie diagram would be the best
method to convey a potential risk to the executive team. Victor will use the bow-tie diagram to do which
one of the following?
A. To provide the team with all of the information it needs to know about the risk within a very brief
period of time
