Certified Management Accountant Risk Management 4 — Questions and Answers
Question 1: Which of the following is an operational risk rather than a financial risk?
- Interest rate fluctuations increasing debt service costs
- Foreign currency devaluation reducing export revenues
- A key supplier failing to deliver materials on time (Correct answer)
- Credit default by a major customer
Correct answer: A key supplier failing to deliver materials on time
Operational risk arises from failures in internal processes, people, or systems — such as supply chain disruptions.
Question 2: Value at Risk (VaR) measures:
- The maximum possible loss under any circumstances
- The expected loss at a given confidence level over a specified period (Correct answer)
- The total value of assets exposed to market fluctuations
- The net present value of a risk mitigation investment
Correct answer: The expected loss at a given confidence level over a specified period
VaR estimates the potential loss in portfolio value that will not be exceeded with a given probability over a defined time horizon.
Question 3: A risk register typically includes all of the following EXCEPT:
- Risk description and category
- Probability and impact ratings
- Risk owner and response plan
- Insurance premium amounts paid (Correct answer)
Correct answer: Insurance premium amounts paid
A risk register documents identified risks, their assessments, ownership, and responses — not accounting entries for insurance premiums.
Question 4: Which risk management concept involves creating multiple layers of controls so that if one fails, others remain?
- Risk concentration
- Defense in depth (Correct answer)
- Risk aggregation
- Control convergence
Correct answer: Defense in depth
Defense in depth (or layered controls) ensures redundancy so that no single control failure creates a catastrophic exposure.
Question 5: When assessing the impact of a risk, which dimension is NOT typically considered?
- Financial impact
- Reputational impact
- Regulatory or legal impact
- The risk owner's personal career risk (Correct answer)
Correct answer: The risk owner's personal career risk
Risk impact assessments focus on organizational dimensions — financial, operational, reputational, and regulatory — not personal career considerations.
Question 6: A company diversifies its investments across multiple asset classes to reduce portfolio risk. This strategy is an example of:
- Risk avoidance
- Risk transfer
- Risk mitigation through diversification (Correct answer)
- Risk acceptance
Correct answer: Risk mitigation through diversification
Diversification reduces concentration risk by spreading exposure across assets whose returns are not perfectly correlated.
Question 7: Which of the following best represents a strategic risk for a company?
- A server outage disrupting daily order processing
- A competitor launching a disruptive technology that erodes market share (Correct answer)
- An employee making a data entry error in accounts payable
- A flood damaging a warehouse
Correct answer: A competitor launching a disruptive technology that erodes market share
Strategic risks threaten an organization's ability to achieve its long-term objectives, such as competitive disruption.
Certified Management Accountant Risk Management 4
Which of the following is an operational risk rather than a financial risk?