PM MODULE 88

Question 1

88.1 What is risk?

Answer 1

Exposure to uncertainty

good risk management results in a higher chance of the preferred outcome

Question 2

88.1 What is the Risk Management Process? (3 steps)

Answer 2

Good risk management doe snot prevent losses - but provides a rigorous framework

Question 3

88.1 Name the elements of risk management framework?

Answer 3

Question 4

88.1 What is an ‘enterprise’ view of risk governance?

Answer 4

An ‘enterprise’ view of risk governance is a top-down, holistic approach to risk management that treats risks as an integrated, organization-wide portfolio rather than separate, siloed issues.

Considering the organisation AS A WHOLE

Question 5

88.1 Name the three financial risks:

Answer 5

Things that have exposure to financial markets

Question 6

88.1 what is credit risk?

Answer 6

The uncertainty about whether the counterparty to a transaction will fulfil its contractual obligation

Also called default risk

Question 7

88.1 What is liquidity risk?

Answer 7

The more illiquid an investment is, the more risk

The risk of loss when selling an asset in a market where you might have to sell it for under the fair value of the asset

Question 8

88.1 What is market risk?

Answer 8

The uncertainty of market prices on assets

Question 9

88.1 Name 8 non financial risks:

Answer 9

These arise from the operations of the organisation and from sources external to the organisation

Question 10

88.1 What is operational risk?

Answer 10

Human error, faulty operational processes, inadequate security, or business interruptions

^^ probability of any of these creating a loss

eg cyberrisk

Question 11

88.1 What is solvency risk?

Answer 11

The risk that the company will be unable to continue its operations as it has run out of cash

Question 12

88.1 What is regulatory risk?

Answer 12

the risk that the regulatory environment is going to change, imposing risk of extra cost on the company

Question 13

88.1 What is governmental risk?

Answer 13

or political risk

might include tax risk - that they may change adversely to our organisation

Question 14

88.1 What is legal risk?

Answer 14

uncertainty about the organisation’s exposure to future legal battles

Question 15

88.1 What is model risk?

Answer 15

The risk that the asset valuations based on the organisations analytical models are incorrect

inputs could be wrong etc

Question 16

88.1 What is tail risk?

Answer 16

Risk of extreme events

In these situations, the outcomes at the tail end of a distribution are more likely that an analyst indicates

Question 17

88.1 What is accounting risk?

Question 18

88.1 Name 6 ways of measuring risk exposures:

Answer 18

Probably start with probability

Question 19

88.1 What is Value at Risk (VaR)

Answer 19

Thinking back to tail risk / downside risk

VaR is the minimum loss over a period that will occur with a specific probability

Question 20

88.1 What is conditional VaR?

Answer 20

Is the expected value of the loss GIVEN that the loss exceeds minimum amount

Question 21

88.1 Describe these two risk assessment methods:

Answer 21

stress testing = regulation (we look at the extreme event - and see if the organisation could withstand the event)
- ‘going concern’

scenario analysis = story - what if analysis (assesses changes in multiple inputs
- like a 2% decline in GDP couples with a 30% decrease in equity prices

Question 22

88.1 Risk modification: How do we retain an optimal mix of risks for an organisation?

Answer 22

risk shifting = used derivatives

Question 23

88.1 what is the difference between a surety bond and a fidelity bond?

Answer 23

Surety bonds and fidelity bonds differ primarily in their purpose and scope: surety bonds are three-party agreements that guarantee a contractor or professional will fulfill contractual or legal obligations, while fidelity bonds are essentially insurance protecting a business from financial loss caused by employee theft, fraud, or dishonesty.