Chapter 4-5

Question 1

Control indicator

Answer 1

Provides information about how risk is managed. Metric used to identify an orgs managment of risk ?
Key indicator of underwriting effectiveness

Question 2

Financial risk

Answer 2

It is external, think market risk credit risk price fluctuations risk
It can be reduced through financial contracts ie derivatives

Question 3

Hedging

Answer 3

Offsetting down risk. Reducing or eliminate risk. Holding a lot of safer stocks in case a risky one losses money. It is about future contracts. Thank fixed price contracts, can save you money or lose if price of mortgage goes down.

Can use derivatives this is risk mitigation

Question 4

VAR

Answer 4

Measure of downside risk min. Loss expected 5% probability

Question 5

Economical Capital

Answer 5

Form of regulatory capital, amount of money a firm needs to stay in business it is not based on a formula

Question 6

Regression analysis

Answer 6

Can be used to measure relationships between dependent variable complaints and staff

Question 7

Earnings at risk

Answer 7

Usually less than $ lower % of the time

Think lower lower

Question 8

Risk capital

Answer 8

Cushion for unexpected reduction in value