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web.groovymark@gmail.com
- December 14, 2024
Question 01
A financial institution offers loans to people with low credit ratings, taking on more credit risk than competitors. How does this institution compare with competitors in terms of risk management?
a) It has a lower risk tolerance
b) It has a higher risk appetite
c) It has a conservative risk strategy
d) It has a risk avoidance strategy
Correct Answer: b) It has a higher risk appetite
Explanation: Risk appetite refers to the amount of risk an organization is willing to take to achieve its goals. By lending to high-risk customers, the institution demonstrates a higher risk appetite compared to competitors.
Question 02
A company experiences a data breach due to human error, leading to the dissemination of trade secret information. Which risk mitigation step should the company take to reduce future risks?
a) Increase marketing efforts
b) Replace key personnel
c) Add a secondary control procedure
d) Reduce the workforce
Correct Answer: c) Add a secondary control procedure
Explanation: Adding a secondary control helps prevent similar errors in the future by introducing an additional layer of protection, thus mitigating the risk of data breaches.
Question 03
A wood furniture manufacturer faces rising timber prices and increasing transport costs due to changing weather conditions. What adjustment should the company make to its risk management profile?
a) Focus on marketing efforts
b) Increase production
c) Adjust procurement cost risk
d) Ignore market fluctuations
Correct Answer: c) Adjust procurement cost risk
Explanation: The company should address the increasing procurement costs due to changes in external factors like weather conditions, which directly impact timber prices and transport costs.
Question 04
A company is struggling to manage risks associated with the technological advancements in its industry. The firm is using outdated technology, which is leading to inefficiencies. What does this exemplify in risk terms?
a) Risk driver
b) Risk mitigation
c) Risk transference
d) Risk avoidance
Correct Answer: a) Risk driver
Explanation: Outdated technology acts as a risk driver, contributing to inefficiencies and posing a threat to the company’s ability to compete effectively.
Question 05
A company’s employees are failing to implement risk protocols on an assembly line despite committing to safety. What should the company focus on to achieve compliance?
a) Hiring more employees
b) Explicitly communicating risk procedures
c) Changing leadership
d) Reducing employee tasks
Correct Answer: b) Explicitly communicating risk procedures
Explanation: Clear communication of risk protocols helps employees understand their importance and ensures adherence to safety measures, reducing the risk of accidents.
Question 06
A company is facing regulatory scrutiny due to failing contract oversight audits. What structural change should the organization implement to mitigate this compliance risk?
a) Increase salaries
b) Add more contractors
c) Build risk awareness into directors’ performance goals
d) Outsource all contracts
Correct Answer: c) Build risk awareness into directors' performance goals
Explanation: Linking risk awareness to performance goals encourages directors to prioritize compliance and contract oversight, mitigating future risks.
Question 07
A company has experienced significant stock price declines due to market volatility. What should the company focus on to manage this equity price risk?
a) Increase investment in marketing
b) Hedge against price fluctuations
c) Reduce the workforce
d) Cease operations
Correct Answer: b) Hedge against price fluctuations
Explanation: Hedging helps the company protect itself from market volatility by using financial instruments to offset potential losses caused by equity price risks.
Question 08
A shoe manufacturer faces frequent equipment breakdowns and plans to purchase equipment breakdown insurance. Which risk management strategy is the company using?
a) Risk retention
b) Risk avoidance
c) Risk sharing
d) Risk transfer
Correct Answer: d) Risk transfer
Explanation: By purchasing equipment breakdown insurance, the company is transferring the financial burden of potential equipment failures to the insurance provider.
Question 09
A company undergoes a scenario planning exercise to analyze risks related to new consumer behaviors. How should the company incorporate these insights into its risk management strategy?
a) By ignoring the results
b) By incorporating the risk insights into strategic planning
c) By increasing salaries
d) By eliminating non-essential roles
Correct Answer: b) By incorporating the risk insights into strategic planning
Explanation: Integrating scenario planning insights into the company’s strategy helps ensure that potential risks are addressed in decision-making.
Question 10
A company’s board has delegated risk oversight to a risk oversight committee. What action should the committee take to fulfill its role effectively?
a) Report to shareholders
b) Keep communication channels open with ERM leaders
c) Increase executive salaries
d) Avoid reporting risks
Correct Answer: b) Keep communication channels open with ERM leaders
Explanation: Open communication with ERM leaders allows the committee to stay informed of emerging risks and ensure effective oversight.
Question 11
A technology company is assessing risks related to launching a new AI platform. Which approach should the company take to measure and assess these risks effectively?
a) Ignore market trends
b) Implement a dynamic risk assessment framework
c) Outsource risk management
d) Cease AI development
Correct Answer: b) Implement a dynamic risk assessment framework
Explanation: A dynamic risk assessment framework allows the company to continuously evaluate the risks associated with the evolving tech industry and adjust its strategy accordingly.
Question 12
A company is expanding its operations into a country with high geopolitical risk. What type of risk mitigation strategy should the company consider?
a) Risk sharing
b) Risk retention
c) Risk avoidance
d) Risk acceptance
Correct Answer: a) Risk sharing
Explanation: Risk sharing, such as partnering with local entities, helps the company spread the risks associated with geopolitical instability while benefiting from local expertise.
Question 13
A CFO has been tasked with assessing the financial impact of possible risks to the company’s supply chain. What should the CFO focus on when making this assessment?
a) Advertising costs
b) Opportunity costs of missed sales
c) Employee satisfaction
d) Expansion into new markets
Correct Answer: b) Opportunity costs of missed sales
Explanation: The CFO should consider the opportunity costs associated with supply chain disruptions, including missed sales and their impact on the company’s profitability.
Question 14
A company’s chief financial officer (CFO) has increased risk tolerance after a pause in interest rate hikes by the central bank. What risk should the CFO account for when increasing risk tolerance?
a) Decreased employee retention
b) Financing cost increases if interest rates rise again
c) Market share decline
d) Decreased advertising costs
Correct Answer: b) Financing cost increases if interest rates rise again
Explanation: The CFO should consider the potential risk of rising interest rates, which could increase the company’s financing costs if it takes on more debt.
Question 15
A company has experienced a ransomware attack. The IT team is conducting vulnerability scanning and implementing patch management. Which types of controls are they using?
a) Corrective and compensatory
b) Detective and preventive
c) Directive and compensatory
d) Corrective and preventive
Correct Answer: b) Detective and preventive
Explanation: Vulnerability scanning is a detective control that identifies potential security gaps, while patch management is a preventive control aimed at mitigating those vulnerabilities before they are exploited.
Question 16
A company relies heavily on third-party vendors for payroll services. Which risk mitigation strategy should it implement to reduce the risk of payroll fraud?
a) Risk avoidance
b) Implement reconciliation of payroll reports
c) Increase employee salaries
d) Eliminate third-party services
Correct Answer: b) Implement reconciliation of payroll reports
Explanation: Reconciling payroll reports with internal records helps ensure that any discrepancies, such as fraud or errors, are identified and addressed promptly.
Question 17
A company is planning to expand its product line into a new market but faces regulatory challenges. How should the company manage this strategic risk?
a) Risk avoidance
b) Risk retention
c) Risk transfer
d) Risk sharing
Correct Answer: d) Risk sharing
Explanation: Sharing the risk through partnerships or joint ventures allows the company to mitigate the impact of regulatory challenges while still pursuing expansion.
Question 18
A company is using a project management dashboard to monitor development progress. Several projects remain in “possible delay” or “unmitigated disaster” status. How should the company address this issue?
a) Increase the project budget
b) Develop targeted action plans for delayed projects
c) Ignore the status and proceed
d) Hire additional project managers
Correct Answer: b) Develop targeted action plans for delayed projects
Explanation: Creating targeted action plans ensures that projects facing delays receive focused attention to mitigate issues and meet deadlines.
Question 19
A company has decided to outsource non-core functions to free up resources. Which question should the ERM team address in the decision document?
a) “How can we reduce our marketing costs?”
b) “What are the key concerns that must be addressed to ensure performance?”
c) “How can we increase our product line?”
d) “What is the total cost of outsourcing?”
Correct Answer: b) "What are the key concerns that must be addressed to ensure performance?"
Explanation: Focusing on key performance concerns ensures that outsourcing does not negatively impact core business objectives or service quality.
Question 20
A software company is assessing the potential risks of launching a new AI platform in a rapidly changing industry. What risk assessment approach should the company take?
a) Focus solely on financial risks
b) Conduct exploratory scenario planning sessions
c) Avoid risk analysis
d) Cease the project
Correct Answer: b) Conduct exploratory scenario planning sessions
Explanation: Exploratory scenario planning helps the company assess long-term risks and uncertainties in a dynamic, evolving industry, providing valuable insights for strategic decisions.
