ARM 54 Practice Exam
Risks from accidental loss, including the possibility of loss or no loss defines - Answer-
Hazard risk
The traditional definition of risk management reflects the traditional concept of risk as -
Answer- Negative
Which one of the following statements is true regarding the evolution of risk and risk
management? - Answer- The definition of risk has evolved to include positive as well as
negative attributes
The Dodd-Frank Act, Solvency II, and Basel III all have the purpose of reducing -
Answer- Systemic risk
Which one of the following is a common risk management benefit the entire economy
would realize as a consequence of a risk management program? - Answer- Reduced
waste of resources-Risk management reduces waste of resources. Allocating resources
for potential losses is a cost because the resources cannot be used for other purposes
that could promote growth.
To an insured organization, which one of the following is an example of a cost of risk
associated with an asset or activity? - Answer- Cost of sprinkler systems
One benefit of risk management to the economy is the reduction of the potential for a
major disruption in the functioning of financial markets and the financial system. This
risk that is reduced is called - Answer- Systemic risk
Which one of the following risk management program goals enhances an organization's
reputation? - Answer- Social responsibility-Social responsibility is the risk management
program goal that will most likely enhance an organization's reputation.
An organization must meet the standard of care that it owes to others in order to ensure
that - Answer- Legal obligations are satisfied-An organization must meet the standard
of care that it owes to others in order to ensure that legal obligations are satisfied.
Risk management programs should - Answer- Operate economically and efficiently
Which one of the following is essential to an effective risk management program? -
Answer- Support of the organization's senior management-Support of the organization's
senior management is essential to an effective risk management program.
Which one of the following provides a measure of the maximum potential damage
associated with an occurrence? - Answer- Exposure
In an effort to grow its personal lines book, an insurer decides to offer discounts on
homeowners and personal auto insurance to the employees of its largest business lines
,account. Which one of the following risk measures is most likely to increase as a result
of this marketing decision? - Answer- Correlation-The insurer's risk correlation will most
likely increase as a result of this marketing decision.
According to the law of large numbers, as the number of exposure units insured
increases, - Answer- The relative accuracy of predictions about future losses
increases-According to the law of large numbers, as the number of exposure units
insured increases, the relative accuracy of predictions about future losses increases.
The relationship between which two basic measures is critical for risk management in
assessing risk and deciding whether and how to manage it? - Answer- Likelihood and
consequences
Risk can be classified as diversifiable or nondiversifiable. Which one of the following
statements is true with respect to this type of risk classification? - Answer- Diversifiable
risks tend not to be correlated so they can be managed through diversification or spread
of risk-Diversifiable risks tend not to be correlated so they can be managed through
diversification or spread of risk.
George works for a large company and part of his job is to monitor assets according to
their liquidity. George is particularly concerned that the company fleet cars are affecting
its liquidity and rising fuel prices are having an adverse effect during tight economic
markets. If George's concerns were categorized as causes of loss according to the
quadrants of risk, his concern most directly relates to which one of the following types of
risks? - Answer- Financial risks
Billy owns a beach front cottage which has become his primary residence. Billy's
primary concern is that his home will be hit by a hurricane and badly damaged or even
destroyed. For Billy, this hurricane risk is a - Answer- Subjective risk
Carol has worked as a payroll clerk for a small organization for 20 years. Over the years
she received only two small salary increases and began to embezzle funds from the
company since she felt she was not adequately compensated for her job efforts. In
terms of the quadrants of risk, Carol's theft risk can be classified as - Answer- Both a
hazard risk and an operational risk-Carol's theft risk can be classified as both a hazard
risk and an operational risk.
Three main theoretical concepts explain how enterprise risk management (ERM) works.
One theoretical concept considers not only the combination of individual risks but also
their interactions. This theoretical concept is - Answer- The portfolio theory
The concept of correlation, in the context of why enterprise risk management works, -
Answer- Is the proposition that correlation increases risk while uncorrelated risks can
reduce risk-The concept of correlation, in the context of why enterprise risk
management works, is the proposition that correlation increases risk while uncorrelated
risks can reduce risk.
, Major Corporation delivers its products nationally using its own fleet of vehicles that are
specially designed to encapsulate and protect the cargo they are carrying. What risk
management technique is being used? - Answer- Loss reduction
Which one of the following statements is true regarding enterprise risk management
(ERM)? - Answer- The ERM framework encompasses all stakeholders in the
organization
Which one of the following is an objective and consistent measurement tool that can be
used by organizations to conduct periodic self-assessments? - Answer- The Risk
Maturity Model (RMM)
Conrad Sales Company's vehicles are equipped with a device that allows them to locate
each vehicle for tracking purposes. If a vehicle is stolen, the tracking devices can be
used to recover the vehicle more quickly. Conrad Sales Company is using the risk
management technique of - Answer- Loss reduction
Integration of the management principles governing the organization with the risk
management process is - Answer- Risk governance
As the risk manager for Alpha Corp, Ann Marie recommended that Alpha should follow
an international risk management standard and framework. Which one of the following
describes risk management standards developed by recognized authorities? - Answer-
Organizations follow risk management standards voluntarily
The structure that supports the organization's risk management objectives and
strategies is the - Answer- Risk management framework
A U.S.-based athletic apparel company has manufacturing plants in the Pacific Rim. Its
major product markets are the U.S., Canada, and Europe. The company would like to
develop a risk management program for its supply-chain risk. A recognized international
standard for this purpose is - Answer- ISO 31000
Which one of the following statements is true regarding the International Organization
for Standardization's ISO 31000 standard? - Answer- ISO 31000 applies regardless of
whether the risk has positive and/or negative consequences
The ISO 31000 Standard provides risk management principles, a framework, and a
process. One part of the process includes risk identification, risk analysis, and risk
evaluation. This part of the process is - Answer- Risk assessment-The ISO 31000 risk
assessment includes risk identification, risk analysis, and risk evaluation.
Based on the ISO 31000 definition of risk assessment, which one of the following steps
includes determining the level of risk and its potential effects on the organization? -
Risks from accidental loss, including the possibility of loss or no loss defines - Answer-
Hazard risk
The traditional definition of risk management reflects the traditional concept of risk as -
Answer- Negative
Which one of the following statements is true regarding the evolution of risk and risk
management? - Answer- The definition of risk has evolved to include positive as well as
negative attributes
The Dodd-Frank Act, Solvency II, and Basel III all have the purpose of reducing -
Answer- Systemic risk
Which one of the following is a common risk management benefit the entire economy
would realize as a consequence of a risk management program? - Answer- Reduced
waste of resources-Risk management reduces waste of resources. Allocating resources
for potential losses is a cost because the resources cannot be used for other purposes
that could promote growth.
To an insured organization, which one of the following is an example of a cost of risk
associated with an asset or activity? - Answer- Cost of sprinkler systems
One benefit of risk management to the economy is the reduction of the potential for a
major disruption in the functioning of financial markets and the financial system. This
risk that is reduced is called - Answer- Systemic risk
Which one of the following risk management program goals enhances an organization's
reputation? - Answer- Social responsibility-Social responsibility is the risk management
program goal that will most likely enhance an organization's reputation.
An organization must meet the standard of care that it owes to others in order to ensure
that - Answer- Legal obligations are satisfied-An organization must meet the standard
of care that it owes to others in order to ensure that legal obligations are satisfied.
Risk management programs should - Answer- Operate economically and efficiently
Which one of the following is essential to an effective risk management program? -
Answer- Support of the organization's senior management-Support of the organization's
senior management is essential to an effective risk management program.
Which one of the following provides a measure of the maximum potential damage
associated with an occurrence? - Answer- Exposure
In an effort to grow its personal lines book, an insurer decides to offer discounts on
homeowners and personal auto insurance to the employees of its largest business lines
,account. Which one of the following risk measures is most likely to increase as a result
of this marketing decision? - Answer- Correlation-The insurer's risk correlation will most
likely increase as a result of this marketing decision.
According to the law of large numbers, as the number of exposure units insured
increases, - Answer- The relative accuracy of predictions about future losses
increases-According to the law of large numbers, as the number of exposure units
insured increases, the relative accuracy of predictions about future losses increases.
The relationship between which two basic measures is critical for risk management in
assessing risk and deciding whether and how to manage it? - Answer- Likelihood and
consequences
Risk can be classified as diversifiable or nondiversifiable. Which one of the following
statements is true with respect to this type of risk classification? - Answer- Diversifiable
risks tend not to be correlated so they can be managed through diversification or spread
of risk-Diversifiable risks tend not to be correlated so they can be managed through
diversification or spread of risk.
George works for a large company and part of his job is to monitor assets according to
their liquidity. George is particularly concerned that the company fleet cars are affecting
its liquidity and rising fuel prices are having an adverse effect during tight economic
markets. If George's concerns were categorized as causes of loss according to the
quadrants of risk, his concern most directly relates to which one of the following types of
risks? - Answer- Financial risks
Billy owns a beach front cottage which has become his primary residence. Billy's
primary concern is that his home will be hit by a hurricane and badly damaged or even
destroyed. For Billy, this hurricane risk is a - Answer- Subjective risk
Carol has worked as a payroll clerk for a small organization for 20 years. Over the years
she received only two small salary increases and began to embezzle funds from the
company since she felt she was not adequately compensated for her job efforts. In
terms of the quadrants of risk, Carol's theft risk can be classified as - Answer- Both a
hazard risk and an operational risk-Carol's theft risk can be classified as both a hazard
risk and an operational risk.
Three main theoretical concepts explain how enterprise risk management (ERM) works.
One theoretical concept considers not only the combination of individual risks but also
their interactions. This theoretical concept is - Answer- The portfolio theory
The concept of correlation, in the context of why enterprise risk management works, -
Answer- Is the proposition that correlation increases risk while uncorrelated risks can
reduce risk-The concept of correlation, in the context of why enterprise risk
management works, is the proposition that correlation increases risk while uncorrelated
risks can reduce risk.
, Major Corporation delivers its products nationally using its own fleet of vehicles that are
specially designed to encapsulate and protect the cargo they are carrying. What risk
management technique is being used? - Answer- Loss reduction
Which one of the following statements is true regarding enterprise risk management
(ERM)? - Answer- The ERM framework encompasses all stakeholders in the
organization
Which one of the following is an objective and consistent measurement tool that can be
used by organizations to conduct periodic self-assessments? - Answer- The Risk
Maturity Model (RMM)
Conrad Sales Company's vehicles are equipped with a device that allows them to locate
each vehicle for tracking purposes. If a vehicle is stolen, the tracking devices can be
used to recover the vehicle more quickly. Conrad Sales Company is using the risk
management technique of - Answer- Loss reduction
Integration of the management principles governing the organization with the risk
management process is - Answer- Risk governance
As the risk manager for Alpha Corp, Ann Marie recommended that Alpha should follow
an international risk management standard and framework. Which one of the following
describes risk management standards developed by recognized authorities? - Answer-
Organizations follow risk management standards voluntarily
The structure that supports the organization's risk management objectives and
strategies is the - Answer- Risk management framework
A U.S.-based athletic apparel company has manufacturing plants in the Pacific Rim. Its
major product markets are the U.S., Canada, and Europe. The company would like to
develop a risk management program for its supply-chain risk. A recognized international
standard for this purpose is - Answer- ISO 31000
Which one of the following statements is true regarding the International Organization
for Standardization's ISO 31000 standard? - Answer- ISO 31000 applies regardless of
whether the risk has positive and/or negative consequences
The ISO 31000 Standard provides risk management principles, a framework, and a
process. One part of the process includes risk identification, risk analysis, and risk
evaluation. This part of the process is - Answer- Risk assessment-The ISO 31000 risk
assessment includes risk identification, risk analysis, and risk evaluation.
Based on the ISO 31000 definition of risk assessment, which one of the following steps
includes determining the level of risk and its potential effects on the organization? -
