Intro to Risk Management: EOCQ Questions And Answers

Risk management in the case of individuals is best described as concerned with: a. hedging risk exposures b. maximizing utility while bearing a tolerable level of risk c. maximizing utility while avoiding exposure to undesirable risks - ANS b. maximizing utility while bearing a tolerable level of risk. certain risks cannot be avoided ( eg, health, theft, accident etc ) Which of the following may be controlled by an investor? a. Risk b. Raw returns c. Risk-adjusted returns - ANS a. Risk Can never control returns. The process of risk management includes: a. minimizing risk b. maximizing returns c. defining and measuring risks being taken - ANS c. defining and measuring risks being taken. Risk governance: a. aligns risk management activities with the goals of the overall enterprise b. defines the qualitative assessment and evaluation of potential sources of risk in an organization c. delegates responsibility for risk management to all levels of the organizations's hierarchy - ANS a. aligns risk management activities with the goals of the overall enterprise. The factors a risk management framework should address include all of the following except: a. communications b. policies and processes c. names of responsible individuals - ANS c. names of responsible individuals Which of the following is the correct sequence of events for risk governance and management that focuses on the entire enterprise? Establishing: a. risk tolerance, then risk budgeting, and then risk exposures b. risk exposures, then risk tolerance, and then risk budgeting c. risk budgeting, then risk exposures, and then risk tolerance - ANS a. risk tolerance, then risk budgeting, and then risk exposures Which of the following best describes activities that are supported by a risk management infrastructure? a. Risk tolerance, budgeting, and reporting b. Risk tolerance, measurement, and monitoring c. Risk identification, measurement, and monitoring - ANS c. Risk identification, measurement, and monitoring Effective risk governance in an enterprise provides guidance on all of the following except: a. unacceptable risks b. worst losses that may be tolerated c. specific methods to mitigate risk for each subsidiary in the enterprise - ANS c. specific methods to mitigate risk for each subsidiary in the enterprise governance is high level, specific methods would not fall under governance A firm's risk management committee would be expected to do all of the following except: a. approving the governing body's proposed risk policies b. deliberating the governing body's risk policies at the operational level c. providing top decision-makers with a forum for considering risk management issues - ANS a. approving the governing body's proposed risk policies Risk management committee is at the operational level. BoD approves policies at the governance level. Once an enterprise's risk tolerance is determined, the role of risk management is to: a. analyze risk drivers b. align risk exposures with risk appetite c. identify the extent to which the enterprise is willing to fail in meeting its objectives - ANS b. align risk exposures with risk appetite The process would entail a. and c. but the role is b. Which factor should most affect a company's ability to tolerate risk? a. a stable market environment b. the beliefs of the individual board members c. the ability to dynamically respond to adverse events - ANS c. the ability to dynamically respond to adverse events this is called agility. ability to tolerate risk is greater if company is more agile. Risk budgeting includes all of the following except: a. determining the target return b. quantifying tolerable risk by specific metrics c. allocating a portfolio by some risk characteristics of the investments - ANS a. determining the target return A benefit of risk budgeting is that it: