CIMA Enterprise Risk Management 2 — Questions and Answers
Question 1: What type of risk arises from inadequate or failed internal processes, people, systems, or external events?
- Market risk
- Credit risk
- Operational risk (Correct answer)
- Strategic risk
Correct answer: Operational risk
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, systems, or from external events.
Question 2: Which of the following is an example of a 'strategic risk'?
- A supplier failing to deliver raw materials on time
- An IT system crashing due to a software bug
- A new competitor entering the market and eroding market share (Correct answer)
- An employee making an error in a financial report
Correct answer: A new competitor entering the market and eroding market share
Strategic risk relates to threats to the organization's long-term objectives, such as new competition, technological disruption, or changes in market demand.
Question 3: What does 'business continuity planning' aim to achieve?
- Maximizing profits during normal business operations
- Ensuring an organization can continue critical operations following a disruptive event (Correct answer)
- Reducing the number of employees required to run the business
- Preventing all possible risk events from occurring
Correct answer: Ensuring an organization can continue critical operations following a disruptive event
Business continuity planning ensures that an organization can maintain or quickly resume critical business functions following a disruptive event such as a disaster or cyberattack.
Question 4: In the COSO ERM framework, which component involves setting objectives consistent with the organization's risk appetite?
- Risk assessment
- Control activities
- Objective setting (Correct answer)
- Event identification
Correct answer: Objective setting
In the COSO ERM framework, objective setting is the component where management establishes objectives aligned with the organization's risk appetite and mission.
Question 5: Which of the following describes a 'key risk indicator' (KRI)?
- A measure of past financial performance
- A forward-looking metric that provides early warning signals of increasing risk exposure (Correct answer)
- A report of all risk events that have occurred in the past year
- A ratio used to compare performance against budget
Correct answer: A forward-looking metric that provides early warning signals of increasing risk exposure
A key risk indicator is a forward-looking metric that signals changes in an organization's risk exposure, providing early warnings before risks materialize.
Question 6: What is the main purpose of a 'stress test' in risk management?
- Testing employee performance under pressure
- Evaluating how an organization or portfolio performs under extreme but plausible adverse scenarios (Correct answer)
- Checking compliance with regulatory requirements
- Measuring the average performance of the business over time
Correct answer: Evaluating how an organization or portfolio performs under extreme but plausible adverse scenarios
Stress tests evaluate how an organization, portfolio, or financial position would perform under extreme adverse scenarios to identify vulnerabilities.
CIMA Enterprise Risk Management 2
What type of risk arises from inadequate or failed internal processes, people, systems, or external events?