Reading 53: Introduction to Risk Management

Which of the following best describes the primary goal of the risk management process?

Risk governance is most accurately defined as the responsibility of:

A firm decides to allocate its specific risk factors, such as interest rate risk and equity market risk, to different units to match the overall risk tolerance. This process is best described as:

Which of the following is classified as a financial risk?

Operational risk is best described as the risk of loss resulting from:

Solvency risk is classified as which type of risk?

Which of the following best defines liquidity risk?

An individual investor purchases a lifetime annuity to mitigate the risk of outliving their assets. This specific risk is known as:

The risk that a counterparty to a transaction will fail to fulfill its contractual obligations is known as:

Which measure is most appropriate for assessing the market risk of a single equity security held in a well-diversified portfolio?

Duration is a risk measure primarily used for:

The sensitivity of a derivative's value to the price of the underlying asset is measured by:

Which Greek letter measures the sensitivity of a derivative's value to changes in volatility?

Value at Risk (VaR) is best defined as:

A bank states it has a one-month VaR of $5 million with a probability of 5%. This means:

Conditional VaR (CVaR) differs from VaR in that CVaR:

Which risk management method involves examining the effects of a specific extreme change in a key variable?

Scenario analysis is characterized by:

Which of the following is considered a non-financial risk?

Model risk is defined as:

Tail risk refers to:

An organization decides not to invest in securities of firms in a specific country to avoid political risk. This method of risk management is known as:

Purchasing an insurance policy to cover losses from a fire is an example of:

Using derivative contracts to change the distribution of possible outcomes is best described as:

A surety bond is a form of:

Which method of risk modification involves establishing a reserve account to cover potential losses?

A fidelity bond is used to protect an organization against:

Diversification reduces risk by:

A firm sells call options on a stock it owns. This action is an example of:

Which risk measure is most appropriate for a non-normal probability distribution with negative skew?

The risk that the regulatory environment will change, imposing costs on a firm, is known as:

Tax risk, such as an increase in tax rates, is typically categorized under:

Which of the following scenarios best illustrates the interaction of risks?

A risk management committee provides:

The practice of determining the overall risk exposure an organization will take is called determining its:

Cyber risk is a specific example of:

Accounting risk is best described as:

Which risk modification method involves preventing a risk from occurring, such as by enhancing security?

In the context of risk management, 'Risk Budgeting' refers to:

A risk budget can be constructed based on:

Which statement about the interaction of risks is most accurate?

The risk management process aims to:

Rho measures the sensitivity of a derivative's value to changes in:

Quantifying the risk of bankruptcy for a firm that has never experienced financial distress is best achieved through:

Which of the following is a limitation of Value at Risk (VaR)?

The 'Internet of Things' and 'Corporate Exhaust' are concepts primarily associated with sources of:

Which risk modification method involves paying a premium to another party to accept the risk?

Determining risk tolerance is primarily the responsibility of:

Which of the following is a factor that determines an organization's risk tolerance?

Self-insurance is a term often used to describe:

An organization establishes a reserve fund to cover expected losses from operational errors. This is an example of:

Which risk management activity involves using a 'firewall' within a firm?