[ 2009 FRM Sample Exam ] Operational and Integrated risk management Q4

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(i) is VALID ? since high severity operational risk events can result in devastating losses, these losses are often uninsurable.

(ii) is NOT VALID ? regardless of how well an operational risk hedge works to offset losses from a risk event, the firm will generally suffer enormous damage to its reputation.

(iii) is VALID ? while insurance contracts provide incentive to partake in risky behavior, deductibles help to better align the interests of the insurers and insured. 

(iv) is VALID ? cat bonds allow a firm to raise money to be tapped in the event of a natural disaster. 

Reference: Allen, Boudoukh and Saunders, Understanding Market, Credit and Operational Risk: The Value at Risk Approach, Chapter 5, pp. 186 ? 196.