BAR 1 Risk Management and Economic Analysis Flashcards
M1 M2 M3 M4 M5
Statistical risk ranking methodology (prioritizing list of risks is by) =
multiplying likelihood * severity
largest value is ranked 1 etc
COSO ERM
Components are GO PRO
1) governance & culture (DOVES):
Desired culture, exercise board Oversight, demonstrate commitment to core Values, attract capable Employees, and establish operating Structure
2) strategy & objective setting (SOAR):
a) evaluates alternative Strategies
b) formulates business Objectives
c) Analyzes business context
d) defines Risk appetite
3) Performance (VAPIR):
a) develop portfolio View
b) Assesses severity of risk
c) Prioritizes risk
d) Identifies risk
e) implement risk Responses
4) review & revision (SIR):
a) Substantial change
b) pursues Improvement in enterprise risk management
c) Reviews risk and performance
5) Info, communication, and reporting ongoing
Premise is every entity exists to provide value for stakeholders and faces risk in pursuit of that value. ERM: culture, capability, and practices integrated with strategy setting and performances that org rely to manage risk in creating, preserving, and realizing value.
Price elasticity calculation using point method
= percentage change in quantity demanded / percentage change in price
Percentage change in price =
old price - new price )/ old price
Elasticity above 1.0
more elastic (sensitive to price change). More luxury item
Elasticity below 1.0
inelastic (not sensitive to price changes). Necessity item
Calculate new demand quantity
= current quantity sold * (1- % change in quantity demanded)
% change in quantity demanded
= elasticity value * change in price
Different types of goods:
a) Complementary goods: demand fluctuates together. Rackets and tennis balls
b) Independent goods: demand functions are not interrelated. Bread and vacuum
c) Inferior goods:decrease in demand when income levels rise. Hamburger decreases demand b/c buyers switch to higher priced meats
d) Substitutive goods: price of 1 increases then other has increase in demand. Apple and orange juice
Price inelasticity of demand vs Price elastic demand
Price inelasticity of demand = decrease in price causes decrease in total revenue
Price elastic demand = price decreases = increase in total revenue
Competitive advantage occurs when:
a) either differentiation or cost leadership
b) matches prices of its rivals or has cost structure that is lower than its rivals
c) builds market share
d) increases its prices”
Shifts of demand curve:
a) Shift to left of demand curve for normal good = price of substitute good decreases = substitute more attractive to consumers = demand for main product to decline
b) Shift to right of demand curve for normal good = increase in disposal income
c) Shift to right of demand curve for normal good = consumers expect prices will rice in future = buy more today when prices are lower
d) Shift right is increase demand for normal good
e) Shift to left is decrease demand for normal good
Calculate amount after inflation
= Amount repaid / (1+inflation rate)
The following cause competition to be even stronger force impacting profitability of firm:
a) market is not growing fast
b) several equal-sized firms in market
c) customers don’t have strong brand preferences
d) costs of exiting market exceeds cost of continuing to operate
e) some firms profit making certain moves to increase market share
f) various firms in market use different types of strategic plans
Shifts of supply/demand curve:
a) Supply Curve shift to left = equilibrium price rises and equilibrium quantity falls
b) Demand curve shift to left = equilibrium price and quantity falls
c) Demand curve shift to right = equilibrium price and quantity increases
d) Supply curve shift to right = equilibrium price falls and equilibrium quantity rises
