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ARM 54 Exam: Questions With Correct Solutions
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ARM 54 Exam: Questions With Correct Solutions
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ARM 54 Exam: Questions With Correct SolutionsAligning risks with the organization's risk appetite defines Right Ans -
tolerable uncertainty
The total cost incurred by an organization because of the possibility of
accidental loss is the organization's Right Ans - cost of risk
The concept of correlation, in the context of why enterprise risk management
works, Right Ans - Is the proposition that correlation increases risk while
uncorrelated risks can reduce risk.
Which one of the following provides a measure of the maximum potential
damage associated with an occurrence? Right Ans - exposure
Which one of the following types of risks can result in losses but not in any
gains? Right Ans - hazard risks
Autumn Assurance Group has assets at fair value of $100 million.
The present value of Autumn's liabilities is $85 million. The market
value margin is $5 million. Using probability models, Autumn
determines that its VaR is $8 million because it expects to incur an
$8 million or greater loss of capital at a .5 percent probability over
a one-year period.
1. What is Autumn's MVS?
2. What is Autumn's economic capital?
3. Does Autumn have excess capital or a deficiency in capital? Right Ans -
MVS = Fair value of assets - (Present value of liabilities + Market value
margin)
Autumn's MVS = $100 million - ($85 million + $5 million) = $10 million
Autumn's economic capital is $8 million. The VaR is $8 million at the
threshold determined by Autumn.
Autumn's MVS of $10 million is larger than its economic capital of $8 million.
Therefore, Autumn has excess capital. of $2 million.
Assume that the length of time a heating element can operate
safely conforms to a normal distribution with a mean of 5,000
hours and a standard deviation of 1,000 hours. If the element is
replaced after 5,000 hours, which one of the following represents
,the chance that the heating element will become unsafe before
being replaced?
A: 70 percent
B: 50 percent
C: 40 percent
D: 20 percent Right Ans - 50 percent
Vandenberg 's risk manager uses regression analysis to
determine the relationship between Vandenberg's workers
compensation medical expenses (the dependent variable) and its
payroll (the independent variable). The formula for Vandenberg's
linear regression line is y = 5.20 + .098 (x). Next year's payroll is
estimated to equal $3,750,000. Based on this information what are
Vandenberg's estimated workers compensation medical expenses
next year?
A: $367,495
B: $367,500
C: $367,505
D: $375,520 Right Ans - C 367,505
George works for a large company and part of his job is to monitor assets
according to their liquidity. George is particularly concerned that the company
fleet cars are affecting its liquidity and rising fuel prices are having an adverse
effect during tight economic markets. If George's concerns were categorized
as causes of loss according to the quadrants of risk, his concern most directly
relates to which one of the following types of risks? Right Ans - financial
risks
A company's board of directors has several committees, including an audit
committee. The primary role of the audit committee is to Right Ans -
Assure compliance with financial regulations and legal requirements.
The Committee of Sponsoring Organizations of the Treadway Commission
(COSO) grouped internal control objectives into three categories. One
category of objectives deals with how well an organization meets numerous
local, national, and international laws. This category of objectives is Right
Ans - Compliance objectives.
, Recent trends in government regulations have instituted more formal
requirements for the board of directors of organizations. This is especially
true for organizations involved in which one of the following? Right Ans -
Financial services
The practice of using an organization's limited internal audit resources in
those areas with the highest priority is called Right Ans - risk-based
auditing
Risk reports should be focused on business objectives as well as compliance
with regulatory requirements. Reports should identify risks that are
increasing or decreasing, risks that need immediate attention, and risks that
require further analysis to determine their eventual effect on the organization.
These characteristics of risk reporting demonstrate Right Ans -
functionality
Which one of the following groups of individuals within an organization is
responsible for establishing effective internal controls to monitor risk?
Right Ans - employees
Risk to an entity - apart from any action to alter either the likelihood or impact
of the risk - is known as Right Ans - Inherent risk.
The structure that supports the organization's risk management objectives
and strategies is the Right Ans - risk management framework
Integration of the management principles governing the organization with the
risk management process is Right Ans - risk governance
Be-Ne-Lux Insurance is an insurer operating in Belgium, the Netherlands, and
Luxembourg. Be-Ne-Lux is subject to the Solvency II standards. Company
managers believed the company was adequately financed, however it was
determined that the company did not have adequate assets based on the
uncertainty of its operating performance. The standard that Be-Ne-Lux failed
to meet is Right Ans - risk-based capital
Which one of the following is a characteristic that differentiates big data from
traditional data? Right Ans - velocity
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