AS-05 (v) Actuarial Aspects of Risk Management Mock Test 17
This section explains important concepts in enterprise risk management, financial management, and environmental risk assessment. It discusses exposure at risk, components of the economic environment, and organizational risk tolerance after implementing risk treatments. The chapter also covers seismic hazards, financial leverage formulas, fraud risk assessment under governance frameworks, and the consequences of unrecognized or unmanaged risks. It explains the Modigliani-Miller (MM) theory regarding the weighted average cost of capital (WACC), the transfer of risks through securitisation, and the relationship between exposure duration and risk level. These concepts support effective decision-making, capital management, and long-term organizational resilience.
1. Exposure at risk was expressed as a percentage of what?
A. Gross revenue only
B. Market capitalization
C. Net income (NI)
D. Total assets
E. Number of employees
2. Which of the following is included in the economic environment?
A. Fiscal policy
B. Legal
C. Social
D. Political
E. Technological
3. 'Risk tolerance' refers to an organisation's or stakeholder's readiness to:
A. Outsource all decisions
B. Bear the risk, after treatment, in order to achieve its objectives
C. Maximise all losses
D. Eliminate every possible risk
E. Avoid all activities
4. Earthquakes and landslides are examples of which natural disaster hazard?
A. Hydrologic hazards
B. Frictional hazards
C. Environmental hazards
D. Atmospheric hazards
E. Seismic hazards
5. In the DFL formula, what does 'TR' represent?
A. The tax rate
B. The trading ratio
C. The treasury rate
D. The transfer rate
E. The total revenue
6. Which risk assessment evaluates potential instances of fraud and is often part of Sarbanes-Oxley compliance?
A. Operational risk assessment
B. Strategic risk assessment
C. Fraud risk assessment
D. Customer risk assessment
E. Market risk assessment
7. When a risk is unrecognized, unmanaged, or ignored, this is referred to as which state?
A. By transfer
B. By insurance
C. By default
D. By avoidance
E. By policy
8. According to MM, WACC is independent of what?
A. The investment decisions
B. The tax shield
C. The debt-equity ratio
D. The operating income
E. The cash flows
9. Securitisation transfers which risks to the ultimate investors of the securitised assets?
A. Only operational risk
B. No risk at all
C. Only reputational risk
D. Only legal risk
E. Interest rate risk, credit risk and pre-payment risk
10. When choosing a suitable time horizon, the longer the duration of exposure:
A. The risk is irrelevant
B. The lower the level of risk
C. The risk is unchanged
D. The higher the level of risk
E. The risk becomes zero
