AS-05 (v) Actuarial Aspects of Risk Management Mock Test 06
This section focuses on capital management, financial risk measurement, enterprise risk management, and effective risk identification. It explains the role of beta in measuring systematic risk, EBIT/EPS analysis in financing decisions, and the importance of identifying root causes rather than symptoms of risk. The chapter highlights the use of leading indicators to detect emerging risks, the influence of the external business environment, and the limitations of GAP management in interest rate risk. It also discusses risk acceptance as an informed decision, the objective of capital management, and key learning outcomes related to selecting an appropriate risk discount rate.
1. Allowing for systematic risk, the beta measure relates to:
A. The dividend policy
B. The tax rate
C. The advertising budget
D. The marketing strategy
E. The company's (or industry's) existing activities
2. According to the EBIT/EPS analysis, if EBIT is expected to be above $2 million, which plan is preferred?
A. Both plans equally
B. Neither plan
C. The stock plan always
D. The marketing plan
E. The debt plan, after considering the increased risk
3. A pitfall to avoid in risk identification, besides omissions, is:
A. Identifying too many risks
B. Being distracted by factors that are only symptoms, not root causes
C. Involving the whole team
D. Documenting risks
E. Using brainstorming
4. According to Key Principle 5, leading indicators are used to:
A. Increase costs
B. Eliminate governance
C. Replace management
D. Reduce objectives
E. Provide insight into potential risks
5. The term 'business environment' connotes which of the following?
A. The firm's product catalogue
B. External forces, factors and institutions beyond the control of the business
C. Only the company's employees
D. The firm's accounting records
E. Internal departments only
6. A limitation of GAP management is that it focuses only on current interest sensitivity and ignores:
A. Staff salaries
B. Marketing spend
C. The effect of interest rate movements on the value of bank assets and liabilities
D. The bank's logo
E. The branch network
7. According to Self-Examination Question 1, what is the objective of capital management (the correct answer)?
A. Minimizing all returns
B. Best credit rating in the industry
C. Maximizing values for the owners of the business
D. Maximizing values for the customer
E. Accounts that give a true and fair view
8. 'Risk acceptance' is defined as an informed decision to:
A. Insure a particular risk
B. Report a particular risk
C. Take a particular risk
D. Eliminate a particular risk
E. Audit a particular risk
9. Section B of the learning outcomes deals with which topic?
A. Choosing suitable Risk Discount Rate
B. Recruitment
C. Tax planning
D. Advertising
E. Marketing strategy
10. How many distinct periods does the Registration Process have?
A. Three
B. Ten
C. One
D. Five
E. Two
