Portfolio Management & Strategy Flashcards
7 cards from real RIMS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Portfolio Management & Strategy flashcards as text
In risk portfolio management, what does 'risk aggregation' primarily involve?
Answer: Combining individual risk exposures to understand total organizational risk
Risk aggregation combines individual risk exposures across the enterprise to reveal total risk concentration, correlations, and net organizational impact.
Which metric best measures the potential loss that a risk portfolio could suffer at a given confidence level over a specified time horizon?
Answer: Value at Risk (VaR)
Value at Risk (VaR) quantifies the maximum potential loss at a specified confidence level (e.g., 95%) over a defined time horizon.
A company decides to retain a higher level of risk in its portfolio to reduce insurance premiums. This strategy is best described as:
Answer: Risk retention
Risk retention involves deliberately keeping risk exposures in-house, often through higher deductibles or self-insurance, to lower the cost of transferred risk.
When constructing a risk portfolio strategy, 'correlation' between risks is important because:
Answer: Highly correlated risks can compound losses when multiple events occur simultaneously
Highly correlated risks tend to materialize together, meaning simultaneous losses can exceed what independent analysis of each risk would suggest.
Which of the following best describes a 'captive insurance company' as a portfolio strategy tool?
Answer: A subsidiary formed to insure the risks of its parent organization
A captive is a wholly or partially owned insurance subsidiary created by a parent company to finance its own risk exposures rather than purchasing commercial coverage.
In the context of enterprise risk management (ERM), a 'risk appetite statement' serves to:
Answer: Define the aggregate level and types of risk the organization will accept in pursuit of objectives
A risk appetite statement articulates the board-approved level and types of risk the organization is willing to accept while pursuing its strategic goals.
The 'efficient frontier' concept applied to a risk portfolio suggests that an optimal portfolio:
Answer: Achieves the lowest total cost of risk for a given level of retained exposure
Borrowing from portfolio theory, the efficient frontier in risk management identifies combinations of retained and transferred risk that minimize total cost of risk for each level of retained exposure.