AS-05 (v) Actuarial Aspects of Risk Management Mock Test 03
This section explains the principles of risk assessment and the tools used to measure and manage financial risk. It discusses how stronger risk controls reduce the likelihood of adverse events and highlights the role of Value at Risk (VaR), Key Risk Indicators (KRIs), and simulation techniques in evaluating uncertainty. The chapter emphasizes that risk assessment should be continuous, integrated into business decision-making, and aligned with organizational objectives. It also explores inherent risk assessment, financial risk categories, secondary consequences of losses, and the importance of sufficient simulation iterations to accurately estimate extreme events and support effective enterprise risk management.
1. According to the discussion of Figure 8, the probability of risky events does what as the level of risk control increases?
A. It declines, indicating a positive impact of the control process
B. It becomes negative
C. It stays constant
D. It increases
E. It doubles
2. The VaR technique typically assumes that asset returns are:
A. Constant
B. Normally distributed
C. Always negative
D. Uniform
E. Always positive
3. Secondary consequences depend not only on the amount lost but also on:
A. The tax rate
B. The number of employees
C. The brand name
D. The marketing budget
E. The specifics (or nature) of the resulting loss
4. What is the second step in performing a risk assessment?
A. Determine risk tolerance
B. Assess inherent likelihood and impact
C. Identify events that could affect the achievement of objectives
D. Identify business objectives
E. Evaluate the portfolio of risks
5. KRIs stand for which of the following?
A. Key Revenue Indicators
B. Key Risk Indicators
C. Key Resource Indicators
D. Key Report Indicators
E. Key Return Indicators
6. To be effective, risk assessment must NOT be:
A. Embedded within the business cycle
B. Integrated into the business process
C. Merely a checklist disconnected from business decision making
D. Owned by the business
E. A continuous process
7. Which of the following is one of the three categories of financial risk?
A. Marketing
B. Capital structure
C. Reputation
D. Recruitment
E. Advertising
8. What is Risk Assumption described as in the chapter?
A. The last resort
B. A type of buffering
C. The first option
D. A form of risk transfer
E. An illegal practice
9. Simulations with insufficient iterations may underestimate the probability in:
A. The median
B. The tails of the distributions, which is where the risks are
C. The center
D. The mode
E. The mean
10. Third parties to which a firm is exposed may, in a scenario, create additional losses through what mechanism?
A. Marketing campaigns
B. Brand improvement
C. Increased dividends
D. 'Feedback' as secondary consequences
E. Tax breaks
