AS-05 (v) Actuarial Aspects of Risk Management Mock Test 10
This section explains advanced enterprise risk management techniques for handling extreme events, risk assessment, and financial risk treatment. It highlights the use of power law distributions to model tail risks, leading indicators for early risk detection, and the structured steps of risk assessment. The chapter emphasizes that effective risk controls reduce losses and that strategic goals must align with available capital to maintain solvency. It also discusses interest rate risk management using collar strategies, compliance risk categories, contingency planning, feedback mechanisms for continuous improvement, and risk financing arrangements to address the financial consequences of uncertain events while strengthening organizational resilience.
1. To address extreme events, the chapter suggests using which distribution at the tails instead of the normal distribution?
A. A constant distribution
B. A power law distribution
C. A uniform distribution
D. A binomial distribution
E. A linear distribution
2. In the flood plain example, if the control method is to reduce loss by placing sandbags and renting pumps, which is the more appropriate leading indicator?
A. The cost of pumps
B. The number of staff
C. The budget
D. Water height
E. Measuring the rainfall across the watershed (allows time to implement the control)
3. What is the fourth step in performing a risk assessment?
A. Identify business objectives
B. Identify events
C. Assess inherent likelihood and impact of risks
D. Evaluate the portfolio of risks
E. Determine risk tolerance
4. According to the chapter, the higher the level of risk control, what should happen to losses?
A. The lower the losses should be
B. Losses become negative
C. Losses are eliminated entirely
D. Losses remain unchanged
E. The higher the losses should be
5. Strategic goals must be established in accordance with the level of available capital. Without this kind of consistency, what could happen?
A. The company will always succeed
B. The company will avoid all decisions
C. The company will experience low efficiency, lack of liquidity, or bankruptcy
D. The company will need no capital
E. The company will eliminate all risk
6. Buying an interest rate cap and selling an interest rate floor to offset the cap premium creates which strategy?
A. A straddle
B. A naked option
C. A reverse repo
D. An interest rate 'collar'
E. A butterfly
7. The consequences of a compliance failure fall into how many categories?
A. Two
B. Three
C. Six
D. Five
E. Four
8. In the example, what would the contingency need to be if set at 100 percent to cover the Rs.1,000,000 event?
A. Rs.1,000,000
B. Rs.200,000
C. Rs.49,000,000
D. Rs.2,000,000
E. Rs.20,000
9. Which task provides feedback of analysis and mitigation for future use?
A. Cancel the project
B. Monitor contingency resolution
C. Develop reporting procedures
D. Provide feedback of analysis and mitigation for future risk assessment and allocation
E. Avoid documentation
10. 'Risk financing' is a form of risk treatment involving contingent arrangements for the provision of funds to meet or modify the:
A. Staff salaries
B. Dividend payments
C. Financial consequences should they occur
D. Audit fees
E. Marketing budget
