ARM 400 NEWEST 2025 ACTUAL EXAM
QUESTIONS AND CORRECT DETAILED
ANSWERS
Big data - ANSWER>>Sets of data that are too large to be gathered and analyzed by
traditional methods.
Smart product - ANSWER>>An innovative item that uses sensors; wireless sensor networks;
and data collection, transmission, and analysis to further enable the item to be faster, more
useful, or otherwise improved.
Internet of Things (IoT) - ANSWER>>A network of objects that transmit data to and from each
other without human interaction.
Cloud computing - ANSWER>>Information, technology, and storage services contractually
provided from remote locations, through the internet or another network, without a direct
server connection.
Blockchain - ANSWER>>A distributed digital ledger that facilitates secure transactions
without the need for a third party.
Telematics - ANSWER>>The use of technological devices in vehicles with wireless
communication and GPS tracking that transmit data to businesses or government agencies;
some return information for the driver.
Text mining - ANSWER>>Obtaining information through language recognition.
True or False: Most organizations' sole risk management objective is to mitigate the effects of
accidents. - ANSWER>>False. A holistic risk management approach entails the pursuit of a
variety of objectives besides mitigating the effects of accidents.
Enterprise Risk Management (ERM) - ANSWER>>Holistic risk management strategy, minimize
threats and exploit opportunities
,Root cause analysis (RCA) - ANSWER>>Identifies a loss's predominant cause. RCA can only
look backward
Risk - ANSWER>>An expression of uncertainty about the future
Tolerable Uncertainty - ANSWER>>aligning risks with the organization's risk appetite
Risk Appetite - ANSWER>>Amount of risk an organization is willing to take on in order to
achieve an anticipated result or return.
Value at risk (VaR0 - ANSWER>>A technique to quantify financial risk by measuring the
likelihood of losing more than a specific dollar amount over a specific period of time.
Cost of risk - ANSWER>>The total cost incurred by an organization because of the possibility
of accidental loss.
Exposure - ANSWER>>Any condition that presents a possibility of gain or loss, whether or not
an actual loss occurs.
Provides a measure of the maximum potential damage associated with an occurrence.
Generally, the risk level increases as the exposure increases, assuming the risk is
nondiversifiable.
Volatility - ANSWER>>Frequent fluctuations, such as in the price of an asset.
Risk increases as volatility increases. Easily quantified
Volatility of energy prices is a major risk for many organizations
Likelihood - ANSWER>>A qualitative estimate of the certainty with which the outcome of a
specific event can be predicted.
The likelihood of an occurrence is a key measurement in risk management
Consequences - ANSWER>>The effects, positive or negative, of an occurrence.
Time horizon - ANSWER>>Estimated duration.
,Longer time horizons are generally riskier than shorter ones.
An insurer that matches the durations of its assets (investments) and liabilities (loss reserves)
neutralizes the risks associated with time horizon.
Correlation - ANSWER>>A relationship between variables.
Pure Risk - ANSWER>>A chance of loss or no loss, but no chance of gain.
Ex: Owner of a commercial building faces risk associated with a possible fire loss.
Insurable risks are generally classified as pure, objective, and diversifiable
Speculative Risk - ANSWER>>A chance of loss, no loss, or gain. Highly affected by:
Price risk - uncertainty about cash flows resulting from possible changes in the cost of raw
materials
Credit risk - risk that customers or other creditors will fail to make promised payments as
they come due
Subjective Risk - ANSWER>>Based on opinion - perceived amount of risk
The closer an individual's or organization's subjective interpretation of risk is to the objective
risk, the more effective its risk management plan will likely be.
Objective Risk - ANSWER>>The measurable variation in uncertain outcomes based on facts
and data.
Diversifiable Risk - ANSWER>>Not highly correlated - its gains or losses tend to occur
randomly and be isolatied. Such risks can be managed through diversification, or spread of
risk.
A risk that affects only some indifviduals, businesses, or small groups
Ex: an insurer can diversify the risks associated with fire insurance by insuring many buildings
in several different locations.
, Nondiversifiable risk examples - ANSWER>>inflation, unemployment, and natural disasters
such as hurricanes
Systemic risks - ANSWER>>The potential for a major disruption in the function of an entire
market or financial system - generally nondiversifiable.
Quadrants of risk - ANSWER>>Hazard, Operational, Financial, Strategic
Hazard risk - ANSWER>>arise from property, liability, or personnel loss exposures and are
generally the subject of insurance.
Pure risk
ex- property risk, legal risk, personnal risk, consequential loss
Operational risks - ANSWER>>risks fall outside the hazard risk category and arise from people
or a failure in processes, systems, or controls, including those involving information
technology.
Pure risk
ex- people risk, IT risk, management oversight, business processes
Financial risks - ANSWER>>arise from the effect of market forces on financial assets or
liabilities and include market risk, credit risk, liquidity risk, and price risk.
Speculative risk
Market risk - ANSWER>>uncertainty about an investment's future value because of potential
changes in the market for that type of investment.
ex- economic environment, political environment, demographics, competition
Liquidity risk - ANSWER>>The risk that an asset cannot be sold on short notice without
incurring a loss.
Strategic risks - ANSWER>>rise from trends in the economy and society, including changes in
the economic, political, and competitive environments, as well as from demographic shifts.
QUESTIONS AND CORRECT DETAILED
ANSWERS
Big data - ANSWER>>Sets of data that are too large to be gathered and analyzed by
traditional methods.
Smart product - ANSWER>>An innovative item that uses sensors; wireless sensor networks;
and data collection, transmission, and analysis to further enable the item to be faster, more
useful, or otherwise improved.
Internet of Things (IoT) - ANSWER>>A network of objects that transmit data to and from each
other without human interaction.
Cloud computing - ANSWER>>Information, technology, and storage services contractually
provided from remote locations, through the internet or another network, without a direct
server connection.
Blockchain - ANSWER>>A distributed digital ledger that facilitates secure transactions
without the need for a third party.
Telematics - ANSWER>>The use of technological devices in vehicles with wireless
communication and GPS tracking that transmit data to businesses or government agencies;
some return information for the driver.
Text mining - ANSWER>>Obtaining information through language recognition.
True or False: Most organizations' sole risk management objective is to mitigate the effects of
accidents. - ANSWER>>False. A holistic risk management approach entails the pursuit of a
variety of objectives besides mitigating the effects of accidents.
Enterprise Risk Management (ERM) - ANSWER>>Holistic risk management strategy, minimize
threats and exploit opportunities
,Root cause analysis (RCA) - ANSWER>>Identifies a loss's predominant cause. RCA can only
look backward
Risk - ANSWER>>An expression of uncertainty about the future
Tolerable Uncertainty - ANSWER>>aligning risks with the organization's risk appetite
Risk Appetite - ANSWER>>Amount of risk an organization is willing to take on in order to
achieve an anticipated result or return.
Value at risk (VaR0 - ANSWER>>A technique to quantify financial risk by measuring the
likelihood of losing more than a specific dollar amount over a specific period of time.
Cost of risk - ANSWER>>The total cost incurred by an organization because of the possibility
of accidental loss.
Exposure - ANSWER>>Any condition that presents a possibility of gain or loss, whether or not
an actual loss occurs.
Provides a measure of the maximum potential damage associated with an occurrence.
Generally, the risk level increases as the exposure increases, assuming the risk is
nondiversifiable.
Volatility - ANSWER>>Frequent fluctuations, such as in the price of an asset.
Risk increases as volatility increases. Easily quantified
Volatility of energy prices is a major risk for many organizations
Likelihood - ANSWER>>A qualitative estimate of the certainty with which the outcome of a
specific event can be predicted.
The likelihood of an occurrence is a key measurement in risk management
Consequences - ANSWER>>The effects, positive or negative, of an occurrence.
Time horizon - ANSWER>>Estimated duration.
,Longer time horizons are generally riskier than shorter ones.
An insurer that matches the durations of its assets (investments) and liabilities (loss reserves)
neutralizes the risks associated with time horizon.
Correlation - ANSWER>>A relationship between variables.
Pure Risk - ANSWER>>A chance of loss or no loss, but no chance of gain.
Ex: Owner of a commercial building faces risk associated with a possible fire loss.
Insurable risks are generally classified as pure, objective, and diversifiable
Speculative Risk - ANSWER>>A chance of loss, no loss, or gain. Highly affected by:
Price risk - uncertainty about cash flows resulting from possible changes in the cost of raw
materials
Credit risk - risk that customers or other creditors will fail to make promised payments as
they come due
Subjective Risk - ANSWER>>Based on opinion - perceived amount of risk
The closer an individual's or organization's subjective interpretation of risk is to the objective
risk, the more effective its risk management plan will likely be.
Objective Risk - ANSWER>>The measurable variation in uncertain outcomes based on facts
and data.
Diversifiable Risk - ANSWER>>Not highly correlated - its gains or losses tend to occur
randomly and be isolatied. Such risks can be managed through diversification, or spread of
risk.
A risk that affects only some indifviduals, businesses, or small groups
Ex: an insurer can diversify the risks associated with fire insurance by insuring many buildings
in several different locations.
, Nondiversifiable risk examples - ANSWER>>inflation, unemployment, and natural disasters
such as hurricanes
Systemic risks - ANSWER>>The potential for a major disruption in the function of an entire
market or financial system - generally nondiversifiable.
Quadrants of risk - ANSWER>>Hazard, Operational, Financial, Strategic
Hazard risk - ANSWER>>arise from property, liability, or personnel loss exposures and are
generally the subject of insurance.
Pure risk
ex- property risk, legal risk, personnal risk, consequential loss
Operational risks - ANSWER>>risks fall outside the hazard risk category and arise from people
or a failure in processes, systems, or controls, including those involving information
technology.
Pure risk
ex- people risk, IT risk, management oversight, business processes
Financial risks - ANSWER>>arise from the effect of market forces on financial assets or
liabilities and include market risk, credit risk, liquidity risk, and price risk.
Speculative risk
Market risk - ANSWER>>uncertainty about an investment's future value because of potential
changes in the market for that type of investment.
ex- economic environment, political environment, demographics, competition
Liquidity risk - ANSWER>>The risk that an asset cannot be sold on short notice without
incurring a loss.
Strategic risks - ANSWER>>rise from trends in the economy and society, including changes in
the economic, political, and competitive environments, as well as from demographic shifts.
