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ARM 401 Segment C, Assignment 10 Exam Questions with Correct Answers.
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ARM 401 Segment C Assignment 9 Exam Questionswith Correct Answers
A construction company based in the U.S. has building contracts in five different foreign nations. The
construction company agreed to accept payment for its work in each country's currency. The risk of loss
of value when these foreign payments are converted to U.S. dollars is called - Correct Answer -
Exchange-rate risk
Jones, Inc. buys grain from local farmers and re-sells the grain to a number of customers. Jones, Inc. has
been approached by Snack Cracker Company. Snack Cracker would like to purchase wheat and corn
from Jones, Inc. to use in the crackers it produces. Snack Cracker would like to pay for the grain within
30 days of the date the grain is delivered. As Snack Cracker is a new customer, Jones, Inc. asked to
review its financial statements. Which balance sheet ratio would best assist Jones, Inc. in determining if
Snack Cracker can pay for the grain within 30 days of the sale? - Correct Answer - Current ratio
One of the main functions of a risk-based capital allocation model is - Correct Answer - To prospectively
determine the amount of risk associated with a business activity.
Economic capital attempts to quantify the various risks faced by an organization. One such risk is loss of
value because of not properly matching asset and liability cash flows. This risk is called - Correct Answer
- Liquidity risk.
The fair value of assets minus the fair value of liabilities, with both of these measures adjusted for risk, is
known as - Correct Answer - Market value surplus.
The basic accounting equation on which the balance sheet is structured is - Correct Answer - Assets =
Liabilities + Net Worth
Economic capital is based on a concept that measures the expected loss exceeding a threshold level
during a given time period. This concept is called - Correct Answer - Value at risk.
Alpha Pharma Company is considering adding a new product. It is estimated that the economic capital
needed for the product will be $50 million. The product is projected to generate revenues of $45 million
and expenses of $38 million. Managers assign an "expected loss" of $2 million based on the pure risk
associated with this new product. The risk-free rate is 2%. Based on this information, the risk-adjusted
return on capital (RAROC) for this product is - Correct Answer - 12%
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