Associate in Risk
Management (ARM) Exam
Questions And Correct
Answers (Verified Answers)
Plus Rationales 2025/2026
Q&A | Instant Download Pdf
Question 1
Risk management is best defined as:
A. The purchase of insurance policies
B. The identification and elimination of all risks
C. A systematic process for identifying, analyzing, and
responding to risk
D. The reduction of insurance premiums
Answer: C
Rationale: Risk management is a structured process
involving identification, analysis, and treatment of risk—not
simply insurance purchasing.
Question 2
,Which of the following is an example of a pure risk?
A. Investing in stocks
B. Gambling
C. Fire damage to property
D. Launching a new product
Answer: C
Rationale: Pure risk involves the chance of loss or no loss,
but not gain. Fire damage represents pure risk.
Question 3
Which risk management step involves recognizing exposures
to loss?
A. Risk financing
B. Risk identification
C. Risk control
D. Risk evaluation
Answer: B
Rationale: Risk identification focuses on recognizing all
potential loss exposures.
Question 4
A speculative risk differs from a pure risk because:
A. It always results in loss
B. It involves only property damage
,C. It includes the possibility of gain
D. It cannot be insured
Answer: C
Rationale: Speculative risks include both the chance of loss
and gain.
Question 5
Which of the following is an example of operational risk?
A. Damage to a warehouse
B. Fraud committed by an employee
C. Stock market decline
D. Flood damage
Answer: B
Rationale: Employee fraud arises from internal processes
and is considered operational risk.
Question 6
Risk management primarily seeks to:
A. Eliminate all losses
B. Increase speculative opportunities
C. Minimize total cost of risk
D. Transfer all risk to insurers
Answer: C
Rationale: The objective is to minimize the overall cost of
risk, not eliminate risk entirely.
, Question 7
The total cost of risk (TCOR) includes:
A. Insurance premiums only
B. Retained losses only
C. Premiums, retained losses, and administrative costs
D. Property damage only
Answer: C
Rationale: TCOR includes all costs associated with managing
risk.
Question 8
Which technique involves shifting financial consequences of
risk to another party?
A. Retention
B. Avoidance
C. Transfer
D. Reduction
Answer: C
Rationale: Risk transfer shifts responsibility to another
entity, often through contracts or insurance.
Question 9
A risk manager deciding to discontinue a hazardous activity is
using:
Management (ARM) Exam
Questions And Correct
Answers (Verified Answers)
Plus Rationales 2025/2026
Q&A | Instant Download Pdf
Question 1
Risk management is best defined as:
A. The purchase of insurance policies
B. The identification and elimination of all risks
C. A systematic process for identifying, analyzing, and
responding to risk
D. The reduction of insurance premiums
Answer: C
Rationale: Risk management is a structured process
involving identification, analysis, and treatment of risk—not
simply insurance purchasing.
Question 2
,Which of the following is an example of a pure risk?
A. Investing in stocks
B. Gambling
C. Fire damage to property
D. Launching a new product
Answer: C
Rationale: Pure risk involves the chance of loss or no loss,
but not gain. Fire damage represents pure risk.
Question 3
Which risk management step involves recognizing exposures
to loss?
A. Risk financing
B. Risk identification
C. Risk control
D. Risk evaluation
Answer: B
Rationale: Risk identification focuses on recognizing all
potential loss exposures.
Question 4
A speculative risk differs from a pure risk because:
A. It always results in loss
B. It involves only property damage
,C. It includes the possibility of gain
D. It cannot be insured
Answer: C
Rationale: Speculative risks include both the chance of loss
and gain.
Question 5
Which of the following is an example of operational risk?
A. Damage to a warehouse
B. Fraud committed by an employee
C. Stock market decline
D. Flood damage
Answer: B
Rationale: Employee fraud arises from internal processes
and is considered operational risk.
Question 6
Risk management primarily seeks to:
A. Eliminate all losses
B. Increase speculative opportunities
C. Minimize total cost of risk
D. Transfer all risk to insurers
Answer: C
Rationale: The objective is to minimize the overall cost of
risk, not eliminate risk entirely.
, Question 7
The total cost of risk (TCOR) includes:
A. Insurance premiums only
B. Retained losses only
C. Premiums, retained losses, and administrative costs
D. Property damage only
Answer: C
Rationale: TCOR includes all costs associated with managing
risk.
Question 8
Which technique involves shifting financial consequences of
risk to another party?
A. Retention
B. Avoidance
C. Transfer
D. Reduction
Answer: C
Rationale: Risk transfer shifts responsibility to another
entity, often through contracts or insurance.
Question 9
A risk manager deciding to discontinue a hazardous activity is
using:
