Get Smart On This Flashcards
WHAT is “Risk Appetite?”
The degree of willingness by management to accept risk
E.g. Risk appetite should be considered in;
A. Evaluating Strategic Options
B. Setting Objectives
C. Developing risk management techniques
Fill in the Blank:
Enterprise risk management is a(n) (1) , effected by an entity’s board of directors, management, and other personnel., applied in (2) and across the enterprise, designed to identify potential (3) that may affect the entity, and manage risk to be within its (4) , to provide (5) regarding the achievement of (6).
- Process
- Strategy Setting
- Events
- Risk Appetite
- Reasonable Assurance
- Entity Objectives
WHAT would be considered a Compliance Objective of ERM?
Ensuring all audit committee members are independent
WHY? - Because as a practicing public entity, Sarbanes-Oxley Act of 2002 (SOX)requires that all members of an issuer’s audit committee be independent
Thus this is a Compliance Objective
WHAT information must be contained in articles of incorporation?
(1) the # of authorized shares of stock
(2) the address of the initial registered office of the corporation
(3) the name of its first registered agent at that address
(4) names and addresses of the incorporators
WHAT other information may be included in the articles of incorporation?
(1) names and addresses of the initial directors
(2) purpose and duration of the corporation
(3) any provision that may be set forth in the bylaws
WHAT happens if the price elasticity of demand for a product is inelastic?
A price increase causes total revenue to increase
WHY? - Because if the demand for a product is inelastic (e.g. the ratio is less than 1.0), the price effect on total revenue is greater than the quantity effect
Meaning - a firm could increase total revenue by raising its prices under this condition
WHAT situation would cause inelastic demand?
WHEN the percentage change in quantity demanded is less than the percentage change in price
i.e. In this scenario inelastic demand exists
WHAT would be considered “Economic profit?”
PURE profit or the excess of revenue over both explicit and implicit costs.
WHAT is an characteristic/ indicator of a relatively high price elasticity (sensitivity) of demand?
WHEN an item has many similar substitutes
i.e. the quantity demanded will have a strong response to changes in the product’s price
WHEN would prices fall in a competitive market?
WHEN there is a decrease in demand for the product
E.g. In a competitive market, prices will fall when the demand curve shifts to the left or the supply curve shifts to the right
HOW do you calculate Income elasticity
EQUATION: Percentage change in quantity demanded divided by the Percentage change in income
NOTE: Inferior goods have a negative income elasticity
WHAT happens when markets are perfectly competitive?
Consumers have goods and services produced at the lowest cost in the long run
WHAT is the kinked demand curve associated with?
AN Oligopoly
i.e. It is a characteristic of an oligopoly
Decreases (not increases) tend to be matched by the other firms in the industry.
WHAT does it mean to be perfectly inelastic?
That buyers have such a high need for a given product:
- they must pay whatever price sellers choose to charge and there are no suitable substitutes
HOW is demand classified WHEN the elasticity coefficient is greater than one?
As “Relatively elastic”
E.g. Price of athletic shoes falls by 5% and the demand increases by 10% which means the elasticity coefficient is 2.0 (10% ÷ 5%)
