AS-05 (v) Actuarial Aspects of Risk Management Mock Test 11
This section discusses operational and financial risks, enterprise risk management, and financing decisions. It explains that risk varies across organizations depending on business models, brand value, and market concentration. The chapter defines risk as a deviation from expected outcomes that may be positive or negative and highlights the challenges of managing high-impact, low-probability events. It also covers credit rating agency (CRA) business models, financial market concepts, utility functions and risk attitudes, flexible decision-making techniques, interest rate risk management methods, and how changes in capital structure send important signals to investors regarding a company's financial strategy and prospects.
1. Which of the following is listed as a common operational risk in the chapter?
A. Commodity risk
B. Interest rate risk
C. Equity risk
D. Customer dissatisfaction
E. Currency risk
2. A firm with a significant brand value or highly concentrated offerings may have an exposure to a particular risk that is:
A. Always zero
B. Irrelevant
C. Significantly different from otherwise similar firms
D. Always lower
E. Identical to all firms
3. According to the glossary, an 'effect' in the definition of risk is best described as:
A. Always a negative outcome
B. A deviation from the expected, positive and/or negative
C. A legal requirement
D. A fixed monetary amount
E. Always a positive outcome
4. High-impact, low-probability events may be mitigated by reducing the impact or the likelihood, or both. The text notes this may not be what?
A. Useful
B. Recommended
C. Cost-free
D. Necessary
E. Possible
5. In the CRA business model where ratings are sold to financial-product issuers, the CRAs' primary clients are:
A. Issuers
B. Reinsurers
C. Policyholders
D. Regulators
E. Investors
6. Which learning outcome of Chapter 11 deals with the financial market place?
A. E. Risk Optimisation
B. B. Managing Capital
C. D. The Financial Market Place
D. C. Financing Decisions
E. A. Basic Concepts and Theories
7. A linear utility function is used to reflect which risk attitude?
A. Risk loading
B. Risk seeking
C. Risk aversion
D. Risk neutrality
E. Risk inclination
8. Which flexible decision-making action minimizes the impact of early decisions on downstream conditions by avoiding decisions that constrain future decisions?
A. Defer some decisions
B. Restructure the project
C. Analyze and simulate
D. Stage the project
E. Change the scope
9. Managing interest rate risk techniques are broadly classified into which two methods?
A. Local and global
B. Direct and synthetic methods
C. Manual and automatic
D. Internal and external
E. Cheap and expensive
10. Mike Jensen, founder of the Journal of Financial Economics, noted that whenever a company makes a change in its capital structure, what happens?
A. All risk disappears
B. It is automatically illegal
C. It sends a signal to investors
D. Profits are guaranteed
E. Nothing changes
