Chapter 1 - Identifying risk

Question 1

What is strategic risk?

Answer 1

• arise from overall strategic positioning of company in it’s environment (e.g. financial risk)
• from way it chooses to be financed (e.g. debt or equity risk)
• financial conditions differing to predicted (e.g. interest rate risk, fx risk)

Question 2

What is operational risk?

Answer 2

• potential losses arising from normal business operations

- risks arising from day-to-day running of operations and business systems

Question 3

What is pure risk?

Answer 3

Risk where loss is only possible outcome

Question 4

What is gross risk?

Answer 4

Inherent risk that exists if no action taken

Question 5

What is net risk?

Answer 5

Residual risk once action is taken to mitigate risk

Question 6

What are the risks in IT systems? (7)

Answer 6

Physical threats
Virus infection/hacking
Technical failure
Infrastructure failure
Human error
Theft of hardware or software
Business interruption - through fire or flood

Question 7

Risk of international operations? (4)

Answer 7

Currency risks
Cultural differences
Transit risk
Credit risk