TERMS AND DEFINITIONS

Question 1

What is Business Risk?

Answer 1

risk of loss due to internal and external factors

Question 2

What are five subsets of business risks?

Answer 2

1. Hazard
2. Financial
3. Opex
4. Compliance
5. Strategic

Question 3

What are subsets of financial risks?

Answer 3

anything that changes financial status of firm (operations and financial reporting processes)

1. Credit
2. Liquidity
3. Market
4. Trading

Question 4

What is operational risk?

Answer 4

internal failures such as broken system or processes

Question 5

What is inherent risk?

Answer 5

Risk @ play without any steps taken to address them

Question 6

What is reinvestment risk?

Answer 6

Risk of holding an investment too long to the point where firm is forced to reinvest those funds @ LOWER interest risk

Question 7

Political risk

Answer 7

risk to having or considering international investments by a domestic investor

Question 8

List factors that are considered in Operational risks

Answer 8

1. HR
2. Business processes
3. business continuity
4. customer satisfaction
5. health and safety
6. efficiency

Question 9

Inherent Risk

Answer 9

Finding mistakes in absence of controls (ex: finding material mistatements in FS)

Question 10

Earnings at risk is changes in net income due to changes in ________ ______

Answer 10

Interest rates