AS-05 (v) Actuarial Aspects of Risk Management Mock Test 05
This section explains key concepts of enterprise risk management (ERM), financial risk, and corporate finance. It highlights the role of control activities in implementing risk responses, the contagion effect in financial markets, and the Modern (Modigliani and Miller) approach to capital structure. The chapter emphasizes that many corporate risks are foreseeable and manageable through structured risk management. It also discusses underwriting spreads, operational risk recovery periods, COSO's ERM framework, the historical perception of risk, and the Degree of Financial Leverage (DFL). Effective ERM balances risk control with innovation while supporting strategic objectives and organizational resilience.
1. In which step are policies and procedures established and implemented to help ensure the risk responses are effectively carried out?
A. Event Identification
B. Internal Environment
C. Risk Assessment
D. Objective Setting
E. Control Activities
2. The 'domino effect' described in the contagion model refers to:
A. A marketing chain
B. A product line
C. The collapse of one market leading to a broad collapse of financial markets
D. A supply chain
E. An employee hierarchy
3. The Modigliani and Miller (MM) Approach is also referred to as what?
A. The Tax View
B. The Ancient View
C. The Marketing View
D. The Traditional View
E. The Modern View
4. According to the chapter, most risk events impacting corporations today are described as:
A. Foreseeable and manageable
B. Always catastrophic
C. Irrelevant to business
D. Truly random and unpredictable
E. Impossible to manage
5. Within the Financial Market Place, the difference between the price an investment banker pays for securities and the price at which they are sold to investors is called what?
A. The dividend
B. The coupon
C. The spread
D. The premium
E. The discount rate
6. Which challenge warns that controlling risk excessively can be costly and stifle innovation?
A. Results not acted upon
B. Stale assessments
C. Multiple assessments
D. Over controlling risk can be costly and stifle innovation
E. Episodic initiative
7. For operational risk exposures, the time horizon can be thought of as:
A. The interest period
B. The marketing cycle
C. The time required for a company to recover from an event (e.g. a fire)
D. The annual reporting period
E. The product life cycle
8. The COSO definition of ERM combines which three key and strongly related elements?
A. Strategic goals, the identification of risk events, and the risk appetite (available capital)
B. Time, money, and people
C. Land, labour, and capital
D. Profit, loss, and revenue
E. Marketing, sales, and recruitment
9. Historically, businesses viewed risk as:
A. A regulatory formality
B. A guarantee of profit
C. A necessary evil that should be minimized or mitigated
D. Irrelevant to operations
E. An opportunity to embrace
10. In the DFL formula DFL = EBIT / (EBIT - I - (P / (1-TR))), what does 'I' represent?
A. Inventory
B. Investment
C. Interest
D. Inflation
E. Income
