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SEC > PART 3 RISK > Flashcards

PART 3 RISK Flashcards

1
Q

Is an uncertain event that may have a positive or negative impact on the business or project or undertaking

A

Risk

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2
Q

High rewards that potentially come up with opportunity and higher risk that have to be borne as a consequence of danger

A

Risk

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3
Q

The lesser the risk in a given investment the lesser the opportunity for gain

A

True

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4
Q

You can also be said that no risk…

A

No reward

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5
Q

We should be totally avoided we should not understand risk in order to manage them effectively

A

False

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6
Q

Is the business function used to plan organize and control all available resources to reach company goals

A

Management

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7
Q

The systematic process of managing an organization’s risk exposure to achieve its objective

A

Risk management

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8
Q

It is a set of coordinated activities to direct and control an organization with regard to risk

A

Risk management

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9
Q

It deals with the identification assessment and various strategies that help mitigate the adverse effects of risk on the organization

A

Risk management

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10
Q

Purpose of risk management

A

To mitigate the loss of property and increase the success chance of the organization

To identify potential events that may affect the entity and manage risk to be within its risk appetite in order to provide reasonable assurance regarding the achievement of entity objective

To achieve maximum sustainable value from all the activities of the organization

Enhances the understanding of the potential upside and downside of the factors that can affect an organization

Increases the probability of success and reduces both the probability of failure and the level of uncertainty associated with achieving the objectives of the organization

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11
Q

Types of risk

A

Systematic risk
Unsystematic risk

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12
Q

What are the systematic risk

A

Market related risk
Macro in nature
External in nature
Uncontrollable by an organization

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13
Q

What are the unsystematic risk

A

Company specific risk
Micro in nature
Internal in nature
Controllable by an organization

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14
Q

Arises due to variability in the interest rate from time to time

The volatility of bond prices that result from changes in interest rate

It particularly affects the debt securities as they carry the fixed rate of interest

A

Interest rate risk

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15
Q

Also known as position risk

Defined as the risk to which a broker dealer is exposed to and arising from securities held by its principal or in its proprietary or dealer account

Associated with consistent fluctuation seen in the trading price of any particular share or securities

A

Market risk

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16
Q

The risk that the value of your money in real terms will be less than the purchasing power of your original investment

A

Purchasing power risk or inflationary risk

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17
Q

Types of purchasing power risk or inflationary risk

A

Demand inflation risk
Cost Inflation risk

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18
Q

Kinds of risk in systematic risk

A

Interest rate risk
Market risk
Purchasing power risk or inflationary risk

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19
Q

Kinds of unsystematic risk

A

Business risk or liquidity risk
Financial risk or credit risk
Operational risk

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20
Q

Types of business risk or liquidity risk

A

Asset liquidity risk
Funding liquidity risk

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21
Q

Means that risk that an entity will be unable to unwind a position in a financial instrument at or a near its market value because of the lack of depth or disruption in the market for the instrument

A

Asset liquidity risk

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22
Q

Means the risk that an entity cannot obtain the necessary funds to meet its obligation as they failed due at normal times and during crisis

A

Funding liquidity risk

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23
Q

Types of financial risk or credit risk

A

Large exposure risk
Settlement risk
Counterparty risk

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24
Q

Reset an investment may not find our ready buyer or that it may have to be disposed at a substantial loss

A

Business risk or liquidity risk

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25
Q

Also known as default risk

This refers to the credit worthiness of the issuer and expected ability to pay interest and repay the principal

A

Financial risk or credit risk

26
Q

Means risk to which a broker dealer is exposed whether by way o

Proportional large amount of exposure to particular counterparty

Proportionally large exposure to a single issuer or debt

Proportionally large exposure to a single equity security or single issuer group

A

Large exposure risk

27
Q

Exist when counterparty does not deliver a security or its value in cash as per agreement of trade or business

A

Settlement risk

28
Q

Means the risk of a counterparty defaulting and its financial obligation to a broker dealer

A

Counterparty risk

29
Q

Exposure associated with commencing and remaining in the business arising separately from exposures covered by other risk requirements

It is the risk of loss resulting from the inadequate or field internal process people policies and system

A

Operational risk

30
Q

Steps in a sound risk management process

A

Assess
Treat
Monitor

31
Q

Assess

A
  1. Recognition and identification of risks
  2. Evaluating and ranking of risks
32
Q

Treat

A
  1. Responding to significant risks
  2. Resourcing controls
  3. Reaction planning
33
Q

Monitor

A
  1. Reporting and monitoring risk performance
  2. Reviewing the risk management framework
34
Q

Risk assessment phase

A

Risk identification
Risk Analysis
Method of risk identification

35
Q

Establishes the exposure of the organization to risk and uncertainty

A

Risk identification

36
Q

Risk identification requires an intimate knowledge of the following

A

Organization

The market in which it operates

The legal social political and cultural environment in which it exist

An understanding of strategic and operational objectives

37
Q

Activity assist the effective and efficient operation of the organization by identifying those risk that require attention by management

A

Risk analysis

38
Q

The result of this risk can be used to produce a risk profile.
It provides a tool for prioritizing risk treatment efforts

A

Risk analysis

39
Q

Methods of risk identification

A

Strength weaknesses opportunities threats analysis SWOT

FLOWCHARTS AND DEPENDENCY ANALYSIS

QUESTIONNAIRES AND CHECKLIST

WORKSHOPS AND BRAINSTORMING

INSPECTIONS AND AUDITS

40
Q

Responding to significant risk

A

Avoid or accept
Transfer
Reduce/ control/ mitigation
Exploit

41
Q

Types of risk associated with securities

A

Systematic risk
Systematic risk

42
Q

Overall day to day on going risk that can be caused by a combination of factors including the economy interest rates.

Uncontrollable by an organization

Macro in nature

A

Systematic risk

43
Q

Risk arises due to increase in prices which result from an excess of demand over supply

A

Demand inflation risk

44
Q

Arises due to sustained increase in the prices of goods and services

A

Cost inflation risk

45
Q

Is presented in ISO 31000 as the activity of selecting and implementing appropriate control measures to modify the risk

A

Risk treatment

46
Q

Includes as its major element risk control or reduction but extends further to for example risk avoidance risk retention risk transfer and risk exploitation

A

Risk treatment

47
Q

Any system of risk treatment should provide

A

Efficient and effective internal controls

48
Q

Divest by exiting a market or geographic area or by selling liquidating or spinning of a product group

Eliminate at the source by designing and implementing internal preventive processes

Accept risk at its present level taking no further action

Reprise products or services by including a premium

A

Avoid or accept

49
Q

Ensure through cost effective contract with independent, financially capable party under a well defined rest strategy

Hedge risk by entering into capital markets

Share risks or rewards of investing in your markets and products by entering into alliances or joint venture

A

Transfer

50
Q

Control risk through internal processes or actions that reduces the likelihood of undesirable events occurring to an acceptable level

A

Reduce control mitigation

51
Q

Expand business portfolio by investing in new industries and geographic areas

Redesign the company’s business model

Reorganized processes through restructuring vertical integration outsourcing and reengineering

A

Exploit

52
Q

Monitoring and review ensures that the organization monitors risk performance and learns from experience

A

Risk monitoring phase

53
Q

Monitoring and review as the final step involves understanding the impact of the control mechanism developed on the hazard and there is it possess

A

Risk monitoring phase

54
Q

Methods of risk identification

A

Swot analysis
Flowcharts and dependency analysis
Questionnaires and checklist
Workshops and brainstorming
Inspections and audits

55
Q

Strengths weaknesses opportunities threats

A

Swot analysis

56
Q

Analysis of processes and operations within the organization to identify critical components that are key to success

A

Flowcharts and dependency analysis

57
Q

Use of structured questionnaires and checklist to collect information to assist with the recognition of the significant risk

A

Questionnaires and checklist

58
Q

Collection and sharing of ideas and discussion of the events that could impact the objectives stakeholder expectations or key dependencies

A

Workshops and brainstorming

59
Q

Physical inspections of premises and activities and audits of compliance with established system and procedures

A

Inspections and audits

60
Q

Can be used to produce a risk profile. It provides a tool for prioritizing risk treatment efforts.

A

The result of the risk analysis

61
Q

Establishes the exposure of the organization to risk and uncertainty

A

Risk identification

SEC (8 decks)

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