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MCQs on Risk Management
Risk the combination of the probability of an event and its consequences. Risk in business is the chance that future events or results may not be as expected. Here on MCQs.CLUB we have written easy to learn Multiple-Choice Questions (MCQs) that fully cover practice questions and quizzes on Risk Management Overview, Importance and Processes, meaning, types, definition with examples, risk control, strategic risk, mcqs on cfa risk management, covering what is risk management and why is it important? Risk analysis and management MCQs. These risk management quiz with answers are also helpful for business management exams, professional accountancy exams and competitive exams.
- Which of the following definition for ‘Risk’ is correct?
- Risk the combination of the probability of an event and its consequences.
- Risk in business is the chance that future events or results may not be as expected.
- Both A&B
- None
- Why incur risk?
- To generate higher returns a business may have to take more risks in order to be competitive.
- Benefits can be financial – decreased costs, or intangible – better quality information.
- Both A&B
- None
- Risk Management –
- Risk management is the process of managing both downside risks and business risks.
- It can be defined as the culture, structures and processes that are focused on achieving possible opportunities yet at the same time control unwanted results.
- Both A&B
- None
- Risk management is a corporate governance issue. The board of directors have a responsibility to safeguard the assets of the company and to protect the investment of the shareholders from loss of value.
- True
- False
- Elements of a risk management system are:
- There should be a culture of risk awareness within the company.
- There should be a system and processes for identifying, assessing and measuring risks.
- There should be an efficient system of communicating information about risk and risk management to managers and the board of directors.
- All of the above
- Exposure to risk –
- When a company is exposed to risk, this means that it will suffer a loss if there are unfavourable changes in conditions in the future or unfavourable events occur.
- Having measured an exposure to risk, a company can estimate what the possible losses might be, realistically.
- Both A&B
- None
- Companies control the risks that they face. Controls cannot eliminate risks completely. The remaining exposure to a risk after control measures have been taken is called ‘Residual risk’.
- True
- False
- Risk appetite – Management might be willing to accept the risk of loss up to a certain maximum limit if the chance of making profits is sufficiently attractive to them. The risk appetite of a Board or management in any particular situation will depend on:
- the importance of the decision and the nature of the decision
- the amount and nature of the potential gains or losses
- the reliability of the information available to help the Board or management to make their decision
- All of the above
- Approaches to the management of business risks are:
- Diversification of risks, Risk transfer
- Risk sharing and Hedging risk
- Both A&B
- None
- Which of the following is correct?
- Risks can be reduced through diversification. Diversification is also called ‘spreading risks’.
- Risk transfer involves passing some or all of a risk on to someone else, so that the other person has the exposure to the risk.
- Risk sharing involves collaborating with another person and sharing the risks jointly.
- Hedging risk means creating a position (making a transaction) that offsets an exposure to another risk.
- All of the above
- A key aspect of risk management is therefore managing the level of risk and:
- deciding which risks are acceptable and which are not: setting risk limits.
- communicating the policy on risk.
- monitoring risks, and taking appropriate measures to prevent the risks from becoming excessive.
- All of the above
- The TARA framework for risk management include:
- Transferring risk
- Avoiding risk
- Reducing risk
- Accepting risk
- All of the above
- Companies and other entities might appoint one or more risk managers. The role of a risk manager might therefore include:
- Helping with the identification of risks.
- Establishing ‘tools’ to help with the identification of risks.
- Establishing modelling methods for the assessment and measurement of risks.
- All of the above
- Risks should be monitored. The purpose of risk monitoring is to ensure that:
- there are processes and procedures for identifying risk, and that these are effective.
- there are internal controls and other risk management processes in place for managing the risks.
- risk management systems appear to be effective.
- the level of risk faced by the entity is consistent with the policies on risk that are set by the board of directors.
- All of the above
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