Chapter 5: Introduction to risk management 1 Interms of financial risk, creditriskis: A economic loss due tothe default of a customer B__riskof choosing the wrong strategy | CC riskthat customers do not buy the company's products in the expected quantities > exposure to economic loss due to changes in market prices or rates loth 1 2 Ahighly.geared company's financial risk is most likely to increase when it increases its: A. operations B geographical reach borrowings D share capital loth, ti 3. The strategy director of Milton plcis assessing a project that he may recommend to the board of directors. He is concerned about the risk-averse attitude of the board to similar projects in the past. In terms of risk, risk aversion is a measurement of: A the proba ty of risk arising B project uncertainty C the impact of risk D appetite for risk Sample Exam LO 1h, Ti 4 The following staternents have been made in relation to risk and uncertainty. Statement (1) Risk is the variation in an outcome. Statement (2) Uncertainty denotes the inability to predict an outcome. Identify whether each statement is true or false. A Statement (1) true; Statement(2) false B Statement (1) false; Statement (2) false C Statement (1) true; Statement(2) true D Statement (1) false; Statement(2) true LO 1h, ti 26 Busi Technology and Finance: Question Bank Icaw 2020Norman Ltd developed a new product for use in the home improvement market. Tests on the product proved successful although in extreme conditions the product was very flammable. The company decided not to launch the product. In response to the risks highlighted in the product tests, this decision is an example of managing «isk through: A isk avoidance B tisk reduction C tisk transfer Disk acceptance LO 1h, ti ‘The following statements have been made about risk attitudes. Statement (1) A risk-seeking attitude means that an investment should not be undertaken if there is an alternative investment offering a higher risk. Statement (2) A risk neutral attitude means an investment should not be undertaken if there is an alternative investment offering a lower return. Identify whether each statementis true or false. A Statement (1) true; Statement (2) false B_ Statement (1) false; Statement (2) false C_ Statement (1) true; Statement (2) true D Statement (1) false; Statement (2) true LO th, Ti Jenny is a Risk Manager at Fortune Ltd. She is investigating the potential gross risk arising from a decision to incorporate lower quality materials into the production process for one of the company's key products. In assessing potential gross risk Jenny needs to take account of the: A. level of exposure and probability of occurrence B potential loss and probability of occurrence C__ potential loss and level of volatii D__ level of exposure and level of vola LO 1h, 1i Smertin and Jones is a firm providing advice on all aspects of personal finance. Their industry is heavily regulated. A newspaper article predicts that private medicafinsurance, a further area of the firm's business, may become subject to new regulatory requirements from next year. This possibility is an example of: A. business risk financial risk 8 C event risk D LO 1h, i market risk IcAeW 2020 Chapter 5: Yroduction torisk management 27je ie loss of £50,000, The profit wll arise with a 9% Aproject will yield either a profit of £100,000 or a loss ° probability of 0.8 and the loss will arise with a probability of 0.2. The project contains: A. uncertainty only Brisk only C both uncertainty and risk D_ neither risk nor uncertainty LO 4h, ti 10 A risk-minimising investor has the following four investment opportunities. Which two of the four investments will the investor possibly choose? Risk + Investment 1 + Investment 2 + Investment 3 + Investment 4 Return A Investments 2 and 4 B Investments 1 and 4 C Investments 2 and 3 D__ Investments 3 and 4 LO 1h, 11 11 Which of the following is the best definition of the risk concept of ‘exposure’? ‘A How the factor to which a company is exposed is likely to alter B The amount of the loss if the undesired outcome occurs The measure of the way in which a business is faced by risks D_ The likelihood that the undesirable outcome occurs loth, 28 Business, Technology and Finance: Question Bank IcaeW 202012 Which of the following sequences represents the order in which an organisation should respond to risk? A Reduction, avoidance, sharing (or transfer), acceptance (or retention) ‘Avoidance, reduction, sharing (or transfer), acceptance (or retention) »n, sharing (or transfer), avoidance, acceptance (or retention) 8 c Redu D_ Avoidance, sharing (or transfer), reduction, acceptance (or retention) LO 1h, 43. Briggs plc analysed a risk faced by its Scarborough division on a risk map. It concluded that the matter has a low impact but there is a high probability of its occurrence. Which of the following risk responses is most appropriate? A Risk avoidance 8 Risk reduction C_ Risk transfer D_ Risk acceptance LO th, ti 14. An organisation responds to an identified risk by restructuring. Which category of control hasit used? A. Physical controls B System controls Management controls D Financial controls LO 1h, ti 15. Grenville Ltd is renewing its buildings and contents insurance policy for its factories. In terms of risk management, this is an example of: A risk avoidance B risk reduction risk transfer D tisk retention LO th ti 16 What type of risk includes process risk, people risk and event risk? A. Operational risk B Financial risk C Business risk > Strategy risk LO th, ti ICAEW 2020 (Chapter 5: Introductionto risk management 2917 For many years, Manley ple's main source of revenue was the sale of mm colour films for cameras. This source of revenue fell sharply after the introduction of digital cameras. In relation tothe success of digital cameras, Manley ple was the victim oft A. operational risk B financial risk C business tisk D market risk 10 4h, ti forest anette Yee eC TERMS eee EET 18 Acompany has automated production and this resulted in redundancies of some ‘employees paid on an hourly basis (ie, variable labour). The company borrowed heavily to finance the purchase of the machinery needed. The effects of these changes on the company's financial risk are that: both changes (machinery and borrowing) increase the company's financial risk B automation increases financial risk, borrowing decreases it C automation decreases financial risk, borrowing increases it © both changes (machinery and borrowing) decrease the company's financial risk LO 4h, Ti 19° Matrix Ltd has recently failed to supply raw materials in line with the terms of its contract, with Banfield ple. As a result, Banfield plc has had to delay the delivery of products to a ‘major customer. For Banfield ple, the failure of Matrix Ltd to meet its contractual obligations an example of: A financial risk B product risk C business risk D_ eventrisk LO 1h, 11 20. Inwhich order should the following aspects of the risk management process take place? 1 Risk response and control 2 Risk analysis and measurement 3 Risk awareness and identification 4 Risk monitoring and reporting A 12,43 B 32,14 Cc 23,14 D 42,13 LO 1h, 11 30 Business, Technology and Finance: Question Bank ICAEW 202021 Candle plc is concerned about the risk management ofits information systems function. Its systems director has suggested wholly outsourcing information systems management to a third party provider. This action would be a form of: A tisk reduction Brisk transfer CC risk avoidance D risk retention LO 1h, 1i 22, Which of the following risks faced by Lump ple should be classified as business risk? A. Product risk B Event risk Process risk D Financial risk LO 1h, 1i 23. Which type of cyber attack involves criminals recording what a user types onto their keyboard? A Phishing B Keylogging Cc Adclicker D Screenshot manager LO7e 24 Amos Green, the financial controller of Litle Ltd, recently received an email that appeared tobe from the company's bank. Itinstructed Amos to click on a link and confiem some of the company's security information. Just days later, Amos noticed that money had been transferred unexpectedly out of Little Ltd’s bank account. Of which of the following cyber attacks is Little Ltd a victim? A. File hijacking 8 Webcam manager C Phishing D_ Keylogging Sample Exam LO 7c ICAEW 2020 ‘Chapter 5: Introductionto risk management 31