Chapter 4 Operational, Financial, And Strategic Ris

Question 1

Operational risk is an integral part of each organizations functions. Successful organizations define understand and manage their operational risk how is this done

Answer 1

Organizations must understand how operational risk has evolved to successfully manage operational risk, the organization must have a framework that classifies it. A typical framework would include these risk category of people, process, systems, external events

Question 2

What is root cause

Answer 2

The event or circumstance that directly leads to an occurrence

Question 3

Key risk indicators in bracket KRI]

Answer 3

A financial or non-financial metric used to help define and measure potential losses

Question 4

Exposure indicator is

Answer 4

A metric used to addenda fire risk inherent to an organizations operations

Question 5

Loss ratio is

Answer 5

A ratio that measures losses and loss adjustment expenses against earned premium and that reflects the percentage of premiums being consumed by losses

Question 6

Control indicator is

Answer 6

A metric used to identify an organizations management of risk

Question 7

Risk optimization is

Answer 7

I state where by risk and return our balance so that a maximum return is achieved for the level of risk excepted by an organization

Question 8

What is hedging

Answer 8

A financial transaction in which one as that is held to offset the risk associated with another asset

Question 9

Systematic risk

Answer 9

Risk that is common to all securities of the same general class and that therefore cannot be eliminated by diversification

Question 10

Interest rate risk is

Answer 10

The risk that A security’s future value will decline because of changes in the interest rates

Question 11

Swap is

Answer 11

An agreement between two organizations to exchange payments based on changes in the value of an asset, yield, or specific period

Question 12

Cash matching

Answer 12

The process of matching an investment Maturity value with the amount of expected loss payments

Question 13

Zero coupon bond is

Answer 13

A corporate bond that does not pay periodic interest income

Question 14

What is reinvestment risk

Answer 14

The risk of at the rate at which periodic interest payments can be in reinvested over the life of the investment will be unfavourable

Question 15

Commodity price risk

Answer 15

The risk associated with a change in the prices of commodities that are necessary to an organizations operations

Question 16

Cash flow

Answer 16

Cash inflows minus cash outflows

Question 17

Commodity futures contract

Answer 17

A contract either to make or to except delivery of a specified quantity of a commodity on a given date

Question 18

Equity price risk

Answer 18

The risk the changes in the price of a stock or another security will increase or decrease

Question 19

Call option

Answer 19

An option to buy a set amount of the underline security at any time within a specified

Question 20

Put option

Answer 20

An option giving the holder the right to sell a set amount of the underlying security at anytime within a specified period

Question 21

Price risk

Answer 21

The potential for a change in revenue or cost because of an increase or decrease in the price of a product or an input

Question 22

Earnings at risk

Answer 22

The maximum expected loss of earnings within a specific degree of confidence

Question 23

Conditional value at risk

Answer 23

A model to determine the likelihood of a loss given that the losses greater than the E or equal to the VaR

Question 24

Monte Carlo simulation

Answer 24

A computerized statistical model that simulates the effects of various types of uncertainty

Question 25

Capital

Answer 25

The accumulated assets of a business or an owners equity in a business

Question 26

Equity capital

Answer 26

Preferred stock, sir plus, common stock, undivided profits and capital reserves, and net unrealized holding gains in (or losses)on securities that are not available for sale

Question 27

Leverage

Answer 27

The practice of using borrowed money to invest

Question 28

Generally excepted accounting principles (GAAP)

Answer 28

A common set of accounting standards and procedures used in the preparation of financial statements to ensure consistency of presentation and reported results

Question 29

Statutory accounting principles (SAP)

Answer 29

The accounting principles and practises that are prescribed or permitted by an insurers domiciliary state that the insurers must follow

Question 30

Market value surplus

Answer 30

The fair value of assets minus the fair value of liabilities

Question 31

Tariff

Answer 31

Attacks that shields the domestic producers from foreign competition

Question 32

Demographics

Answer 32

The statistical characteristics of human populations

Question 33

Political risk

Answer 33

Any action by a government that favours domestic over foreign organizations or poses a threat to foreign organizations