AS-05 (v) Actuarial Aspects of Risk Management Mock Test 19
This section explains key concepts of enterprise risk management, financial reporting, project risk management, and asset-liability management (ALM). It discusses provisions for expected sales returns, the use of Failure Modes and Effects Analysis (FMEA) to identify critical risks, and enterprise risk management as a continuous, multidirectional process. The chapter also covers revenue reserves, securities regulations during the pre-filing period, risk monitoring practices, Monte Carlo simulation, and ALM for managing asset-liability mismatch risk. It further explains the risk discount rate used in capital budgeting and highlights the suitability of different contract types for projects with varying levels of uncertainty.
1. A provision decreasing the value of receivables due to expected sales returns is a:
A. Inventory provision
B. Bad debt provision
C. Impairment provision
D. Retirement provision
E. Provision for product returns / credit note provision
2. In FMEA, the 'critical group' of risks is analogous to:
A. The cash flow statement
B. The risk register
C. The critical-path activities in a network schedule
D. The team roster
E. The project budget
3. According to the chapter, enterprise risk management is best described as which kind of process?
A. An optional process
B. A purely financial process
C. A one-time event
D. A strictly serial process
E. A multidirectional, iterative process
4. Revenue reserves are created out of:
A. Redemption of shares
B. Issue of debentures
C. Revaluation of assets
D. Operating profit
E. Share premium
5. During the Pre-Filing Period, what is prohibited?
A. Discussing capital needs
B. Holding any meetings
C. Negotiating with the banker
D. Offers to buy or sell securities
E. Selecting securities types
6. Checking facilities periodically is described as a method for what?
A. Reducing salaries
B. Eliminating standards
C. Avoiding evaluation
D. Increasing marketing
E. Monitoring risk
7. Monte Carlo simulation is typically used to:
A. Set premiums
B. Compute exact values
C. Eliminate all risk
D. Replace historical data
E. Combine the risks from multiple risk factors and determine whether the total risk is too great
8. ALM is best described as a systematic approach that attempts to provide a degree of protection against which risk?
A. Reputational risk
B. Legal risk
C. Asset/liability mismatch risk
D. Operational risk only
E. Model risk
9. The Risk Discount Rate is the rate of interest used to:
A. Compute tax liabilities
B. Determine advertising budgets
C. Discount anticipated cash flows from capital projects in Net Present Value calculations
D. Set employee salaries
E. Calculate marketing spend
10. For projects with a high degree of uncertainty, why may performance-based incentive contracts be inappropriate?
A. Because uncertainty has no effect on contracts
B. Because all projects must use fixed prices
C. Because incentives are illegal
D. Because uncertainty reduces all costs
E. Fixed-price contracts may be inappropriate, so performance-based incentive contracts can be used
