APP Risk Assessment & Underwriting 3

Question 1

A buyer discovers that a sole-source supplier is experiencing financial distress. Which risk response is most appropriate?

Accepted Answer

Qualify alternative suppliers as a contingency

Answer

Qualifying alternative suppliers reduces concentration risk and ensures supply continuity if the financially distressed supplier fails.

Question 2

What does the term 'moral hazard' mean in an insurance and risk management context?

Accepted Answer

Increased risk-taking behavior after obtaining insurance coverage

Answer

Moral hazard occurs when having insurance reduces the incentive to avoid risky behavior, since losses are partially covered.

Question 3

Which quantitative risk analysis technique uses repeated random sampling to model the probability distribution of outcomes?

Accepted Answer

Monte Carlo simulation

Answer

Monte Carlo simulation runs thousands of iterations with random variable inputs to produce a probability distribution of possible outcomes.

Question 4

A supplier's Dun & Bradstreet PAYDEX score of 40 indicates:

Accepted Answer

Payments averaging 30 days beyond terms

Answer

A PAYDEX score of 40 indicates the supplier typically pays invoices approximately 30 days beyond agreed terms, signaling financial stress.

Question 5

In procurement risk assessment, 'force majeure' clauses are primarily used to:

Accepted Answer

Excuse contract performance due to unforeseeable extraordinary events

Answer

Force majeure clauses relieve parties of contractual obligations when extraordinary events beyond their control prevent performance.

(APP) Accredited Purchasing Practitioner Certification Practice Test