BAR 1

Question 1

GOPRO-Five Components of ERM

Answer 1

Governance and Culture: Operating Structure and Culture
Objective Setting: focuses on setting business goals, risk appetite, and considers strategies
Performance: Identifies risks, assess risk and develop risk responses
Review and Revision: seeks to improve ERM and reviews the performance and risk
Ongoing: reports on the risk and performance

Question 2

Relationship between internal control and financial reporting

Answer 2

Employee competence in financial reporting should be evaluated frequently to ensure effective internal control over the financial reporting process

Question 3

organizational sustainability

Answer 3

ability of an organization to endure the effects of large impact events

Question 4

forward contract

Answer 4

price for a transaction that is to be received or paid is set at the initiation of the contract, helps to mitigate the effects of foreign exchange rates

Question 5

Price elasticity of demand equation

Answer 5

PED= % change in qty demanded / % change in price;
normal elasticity causes a negative coefficient, because increases in price generally are assumed to decrease the quantity demanded

Question 6

Market rate of interest formula

Answer 6

Risk free rate + inflation premium

Question 7

Required rate of return formula

Answer 7

Inflation premium + Default risk premium + Maturity Risk Premium + Liquidity Premium

Question 8

Risk reaction types

Answer 8

risk averse mgrs assume greater returns for increased risk
risk seeking mgrs assume decreased return for increased risk

Question 9

Relationship between inflation in domestic country and foreign country

Answer 9

Investors prefer to purchase investments in foreign denominated currency overseas when domestic inflation is greater than foreign inflation, this is when US currency is expected to weaken relative to the foreign currency; keep in mind the strength of the currency,