karoliukas

One goal of all risk management systems should be to:

A) make the risk level equal to the prevailing level in the market.

B) bring the level of risk to a desired level of risk, which may exceed zero.

C) eliminate all risk, i.e., reduce risk to zero.

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Since return and risk go together, risk managers should determine the appropriate level of risk that is acceptable. The acceptable level should be based upon the nature of the firm and the risk tolerance of the stakeholders. Those that manage risk should be separate from those that take the risks.

karoliukas

Risk management is best addressed:

A) monthly.

B) daily.

C) quarterly.

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Risk management is a continuous process; therefore addressing it more frequently is better.

karoliukas

Yoshi Chu and Ryan Dobson have been tasked with creating an enterprise-wide risk management (ERM) system for Reliant Financial Services. After creating a centralized data warehousing facility, their next step is creating a useful analytics system. Which of the following features would be least likely included in their system?

A) Derivative valuation models.

B) Legal risk analysis.

C) Monte Carlo simulations.

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A useful analytics system for an ERM is used for assessing risk, not valuing individual assets. The useful system would include several VAR methodologies including historical VAR and Monte Carlo simulation, credit risk analysis, liquidity risk analysis, operational risk analysis, and legal risk analysis.

karoliukas

The final step in the implementation phase of the risk management process is to:

A) identify and price the appropriate tools for achieving the objectives.

B) conduct a Monte Carlo simulation.

C) determine the optimal time to wait for addressing risk again.

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After setting goals and assessing the current level of risk, the firm needs to see if the goals can be achieved cost-effectively. There is no “waiting” in risk management because it is an ongoing procedure. The Monte Carlo simulation may be involved in risk management, but it is certainly not the final step.

karoliukas

Each of the following is a step in the risk management process EXCEPT:

A) setting a target level of risk.

B) identifying the current level of risk.

C) filing taxes.

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There are five parts of the process: identify the desired level of risk, determine the current level of risk, bring the current level in line with the desired level, monitor the risk exposure to keep it line with the desired level, and alter the process to reflect new information, policies and preferences.