CFC CFC Risk Management & Insurance 2

Question 1

Which financial statement ratio is most commonly used to assess a company's ability to absorb unexpected losses and gauge financial risk?

Accepted Answer

Debt-to-equity ratio

Answer

The debt-to-equity ratio measures financial leverage and indicates how much debt the company uses relative to equity, which directly reflects its capacity to withstand losses.

Question 2

What is 'key person' insurance in the context of financial risk management?

Accepted Answer

Life/disability insurance on critical employees whose loss would financially harm the company

Answer

Key person insurance compensates the company financially for the economic loss caused by the death or disability of an employee critical to business operations.

Question 3

In a risk heat map, risks plotted in the upper-right quadrant represent which combination?

Accepted Answer

High likelihood and high impact

Answer

The upper-right quadrant of a risk heat map represents risks that are both highly likely to occur and would have severe impact, making them the highest priority for management response.

Question 4

A controller discovers the company has uninsured exposure to business interruption losses. Which insurance product directly addresses this risk?

Accepted Answer

Business Interruption Insurance

Answer

Business Interruption Insurance (also called business income insurance) covers lost revenue and ongoing expenses when a covered event disrupts normal business operations.

Question 5

What is 'value at risk' (VaR) used to measure in financial risk management?

Accepted Answer

The maximum potential loss over a given time period at a specified confidence level

Answer

VaR quantifies the maximum expected loss over a defined period (e.g., one day) that will not be exceeded with a specified probability (e.g., 95% confidence).

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC CFC Risk Management & Insurance 2