Risk Analysis Flashcards
6 cards from real CAA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Risk Analysis flashcards as text
What is the primary goal of risk analysis in actuarial science?
Answer: To identify, assess, and mitigate risks
Risk analysis helps identify, assess, and mitigate potential financial and operational risks to ensure stability.
Which of the following is an example of systematic risk?
Answer: Stock market crash
Systematic risk affects an entire market or economy, such as a financial crisis, rather than a specific company.
What does Value at Risk (VaR) measure?
Answer: The worst expected loss over a given time frame
VaR estimates the maximum potential loss in a portfolio over a given period with a certain confidence level.
Which risk type is best mitigated through diversification?
Answer: Unsystematic risk
Unsystematic risk, or company-specific risk, can be reduced by holding a diversified portfolio of assets.
What is the primary function of stress testing in risk management?
Answer: To assess reactions to extreme market conditions
Stress testing assesses how a financial system or portfolio would react to extreme adverse conditions.
Which method is commonly used for quantifying risk exposure?
Answer: Monte Carlo simulation
Monte Carlo simulation uses random sampling to model and quantify risk exposure under various scenarios.