ERAC Energy Risk Management Principles 3

Question 1

Which of the following is the primary purpose of stress testing in energy risk management?

Accepted Answer

To evaluate portfolio performance under extreme but plausible scenarios

Answer

Stress testing assesses how a portfolio or firm would perform under severe market conditions that may fall outside normal VaR models.

Question 2

In the ALARP (As Low As Reasonably Practicable) principle, a risk is managed to ALARP when:

Accepted Answer

The cost of further risk reduction is grossly disproportionate to the benefit gained

Answer

ALARP requires reducing risk until the cost of additional mitigation outweighs the safety or financial benefit achieved.

Question 3

A refiner enters a crack spread swap to lock in the margin between crude oil input costs and refined product revenues. This strategy is best described as:

Accepted Answer

A cross-commodity hedge targeting processing margin risk

Answer

A crack spread swap hedges the spread between crude and refined product prices, protecting the refiner's processing margin from adverse moves.

Question 4

Which regulatory body in the US has primary oversight over wholesale electricity market risk and trading practices?

Accepted Answer

FERC

Answer

The Federal Energy Regulatory Commission (FERC) regulates wholesale electricity markets, transmission, and associated trading activities in the US.

Question 5

An energy company's risk management policy requires that all commodity positions be marked-to-market daily. This practice primarily supports:

Accepted Answer

Transparent and timely recognition of changes in portfolio value

Answer

Daily mark-to-market ensures that current market values are reflected in financial statements, enabling timely risk awareness and decision-making.

(ERAC) Energy Risk Auditor Certification Practice Test

(ERAC) Energy Risk Auditor Certification Practice Test

ERAC Energy Risk Management Principles 3