ARM Risk Identification and Analysis 2

Question 1

A risk manager reviews a manufacturer's balance sheet to find assets that could be damaged or destroyed. Which risk identification method is being used?

Accepted Answer

Financial statement analysis

Answer

Financial statement analysis uses the balance sheet, income statement, and cash flow statement to reveal assets, liabilities, and income streams exposed to loss.

Question 2

Which risk identification method is MOST useful for revealing bottlenecks where a single loss could halt an entire production process?

Accepted Answer

Flowchart analysis

Answer

Flowcharts map the movement of goods or processes, exposing critical points and dependencies where a loss would interrupt operations.

Question 3

What is a key limitation of standardized risk assessment questionnaires?

Accepted Answer

They may miss exposures unique to the specific organization

Answer

Standardized questionnaires are generic, so unusual or organization-specific exposures may not be captured.

Question 4

Which of the following is NOT one of the four elements of a loss exposure analysis framework used in ARM?

Accepted Answer

The insurer's combined ratio

Answer

A loss exposure is described by the asset exposed, the cause of loss, the financial consequences, and the entity affected, not by an insurer's financial ratio.

Question 5

A firm's loss history shows only small, frequent losses over five years. What is the MAIN risk of relying solely on this data?

Accepted Answer

Low-frequency, high-severity exposures may be absent from the record

Answer

Rare catastrophic events may not appear in a short loss history, so relying only on past losses can understate severe exposures.

ARM - Associate in Risk Management Practice Test

ARM - Associate in Risk Management Practice Test

ARM Risk Identification and Analysis 2