UNIVERSITY OF SAN JOSE – RECOLETOS

COLLEGE OF COMMERCE – ACCOUNTANCY DEPARTMENT

GOVERNANCE, BUSINESS ETHICS AND RISK MANAGEMENT - ACCOUNTING 401

QUIZ 2: CONTROLLING RISK

1. Defined as a hazard; a peril; exposure to loss or injury.

a. Risk
b. Beta
c. Scope limitation
d. Accounting

2. Generally, when the size of the venture is _____, the co-

ventures keep separate books of account for the joint venture.
a. Small
b. Medium
c. Big
d. None of the above

3. Coffee Inc. entered into a joint venture with Juice Corp.

Coffee Inc. purchased goods costing P100,000.00. Juice Corp.
sold the goods for P150,000.00. Profit sharing ratio between
Coffee Inc. and Juice Corp. is equal. If same sets of books
is maintained, what will be the final remittance?
a. Juice Corp will remit P125,000.00 to Coffee Inc.
b. Juice Corp will remit P150,000.00 to Coffee Inc.
c. Juice Corp will remit P100,000.00 to Coffee Inc.
d. Juice Corp will remit P50,000 to Coffee Inc.

4. Derivatives are contracts that

a. Allow the holder to buy/sell a given commodity
b. Are sold only in established financial markets
c. Usually exposes the holder to increased risk
d. Completely remove risk in financial and economic
transactions

5. SRV Corp. chose to diversify its investments in stocks in

order to mitigate risk of losses. SRV Corp. opt to invest in
aggressive types of common stocks with the objective of growth
in the investment’s value. An aggressive common stock would
have a beta of:
a. Equal to zero
b. Greater than one
c. Equal to one
d. Less than one

6. The greater the beta, the ________ of the security involved.

a. Greater the unavoidable risk
b. Greater the avoidable risk
c. Less the unavoidable risk
d. Less the avoidable risk
7. A risk-free security has a beta equal to ___, while the market
portfolio’s beta is equal to ___.
a. One; more than one
b. One; less than one
c. Zero; one
d. Less than zero; more than zero

8. The difference between futures and forwards is:

a. That forwards are standardized and futures are
customized contracts
b. That most futures are traded in an active market and
most forwards are traded over-the-counter
c. That futures predetermine the price of an underlying
commodity but a forward price is flexible
d. That futures are on currencies and forwards on interest
rates

9. Which of the following scenarios is not the best method of

controlling risk?
a. Entering into futures contract for the purchase of
commodities denominated in foreign currency.
b. Investing in stocks on a large construction industry and
a well-known real estate industry.
c. Ensuring the safety of workers in the production site.
d. General professional partnership for the practice of
public accounting.

10. The purchaser or holder of a call option has

a. The obligation to sell the underlying security
b. The obligation to buy the underlying security
c. The right but not the obligation to sell the underlying
security
d. The right but not the obligation to buy the underlying
security

11. The maximum amount and type of risk an organization is willing

to tolerate
a. Risk appetite
b. Risk tolerance
c. Risk capacity
d. Risk universe

12. Which of the following is not a consideration to be taken in

Stage 1 “Approach”
a. Strategy/ goals/ objectives
b. Culture/ languages
c. Policies/ procedures
d. Common framework

13. A company hired a risk and compliance manager who will be

responsible in reporting to senior management and to the BOD
the risks that the company is currently facing and other
issues that may hinder compliance to specific regulations
and/or standards. The consideration of the qualifications and
skills of the risk manager and the specific functions embodied
is part of:
a. Risk management vision
b. Risk infrastructure
 c. Risk assessment
d. Risk treatment

14. In the investment world parlance, it is defined as a “chance”

that an event will occur.
a. Probability
b. Distribution
c. Possibility
d. Virtual certainty

15. TMX Corp. has a stable operation in the selling of watches.

Some members of senior management suggested on the idea of
selling desktop computers with the end view of reviving the
sales of desktop computers in the electronics and gadgets
industry. In the end, majority of the board did not agree on
the suggestion due to the risk that the company may not be
able to convince the market on their objectives. This type of
risk control is best described as:
a. Risk retention
b. Diversification
c. Risk transfer
d. Risk avoidance

16. Refers to all the potential risks of an organization

a. Risk appetite
b. Risk tolerance
c. Risk capacity
d. Risk universe

17. Which of the following least describes diversification that

will best reduce the risk of loss?
a. Company A purchased the stocks of ALI Corp (a giant real
estate company in the Philippines that actively trades
since 1950s until today) and the stocks of CLI Corp (a
real estate company in the Philippines that just
recently conducted an IPO)
b. Company B invested in the stocks of WPI Corp. (a large
hotel in the Philippines) and the stocks of BMC Corp (a
sugar milling company in the Philippines)
c. Company C has funds that are still to be used after 6
months following a covenant from a bank. Company C placed
the half of the funds in its savings account and half of
the funds in a 6-month time deposit.
d. Company D was classified by a bank as an “aggressive”
type of investor. Company D invested its excess funds to
equity securities and in debt securities.

18. Who is responsible for the establishment of a clear and well-

defined risk strategy communicated throughout the entire
company?
a. Internal audit
b. Senior management
c. Stockholders
d. Risk Manager
19. The TARA framework for risk management stands for:
a. Transfer, Avoid, Reuse, Accept
b. Transfer, Avoid, Reduce, Accept
c. Transfer, Accept, Recycle, Avoid
d. Transfer, Accept, Record, Avoid

20. This occurs when the number of investments in a portfolio

exceeds the point where the marginal loss of expected return
is greater than the marginal benefit of reduced risk. When
adding individual investments to a portfolio, each investment
lowers risk but also lowers the expected return.
a. Speculative risk
b. Currency risk
c. Overdiversification
d. Hedging risk

21. Which of the following is an example of a risk-free security?

a. Stocks in an Initial Public Offering by listed companies
b. Treasury Bonds issued by the government
c. UITFs issued by banks
d. Bank deposits held by commercial banks

22. The maximum level of risk an organization may run given its
capital and liquidity position and other restrictions
a. Risk appetite
b. Risk tolerance
c. Risk capacity
d. Risk universe

23. The amount and type of risk an organization is willing to

accept in pursuit of its business objectives.
a. Risk appetite
b. Risk tolerance
c. Risk capacity
d. Risk universe

24. Which of the following is not a derivative?

a. Swaps
b. Options
c. Futures
d. Bonds

25. It involves collaborating with another person and sharing

risks jointly.
a. Risk avoidance
b. Risk transfer
c. Risk sharing
d. Risk appetite

26. MAC Corp. decided to invest its excess funds in a Short Term
Mutual Fund with a holding period of at least 6 months. The
fund is then invested by a trustee to blue chip securities
which is subject to market risk. Based on the study made by
MAC Corp., this investment is within their risk appetite and
expects a return after the 6 months holding period. Which of
the following best describes the scenario above?
a. Risk avoidance
b. Risk transfer
 c. Risk retention
d. Risk sharing

27. Which of the following is not procedure of monitoring control

a. Key performance indicators
b. Performance evaluations
c. Key risk indicators
d. Test of controls

28. Which of the following is not a procedure in determining and

establishing a company’s risk capabilities:
a. Employees are given structured trainings in basic risk
management procedures and internal control systems
b. Individuals having personal objectives that make
reference to their performance in areas of risk and
control
c. Systems capable of providing early warning of any major
control breakdowns or problems
d. Determining a culture of risk management

29. Which of the following is not a participant of a derivatives

market?
a. Arbitrators
b. Hedgers
c. Speculators
d. Arbitrageurs

30. Which of the following is an example of an internal control

system implemented to control risks of a company?
a. Carrying out regular reconciliations on key ledgers
b. Keeping assets under lock and key
c. Passwords and computer system security
d. All of the above

END OF EXAMS