benefits of ERM in anticipating and responding to risks - ANSWERS1. anticipate and recognize emerging
risks
2. identify and manage cross-enterprise risks
3. minimize threats to achieving organizational goals
4. enhance risk-response decisions
different impediments to successful implementation of ERM - ANSWERS1. technological deficiency - for
ERM to succeed, people have to receive relevant information
2. the traditional organized culture with its entrenched silos - each different branch had its own function
with its own management structure. in the new ERM culture, risk management is integrated throughout
the organization
Sarbanes-Oxley Act (SOX) - ANSWERS-established requirements for internal risk controls and reporting
that can best be met by an ERM process involving an organization's internal audit function
-requires both the CFO and CEO to personally attest to their company's results in financial statements
-requires corporations to review their risk profiles using an enterprise-wide approach
pure risk - ANSWERSa chance of loss or no loss, but no chance of gain
speculative risk - ANSWERSa chance of loss, no loss, or gain
price risk - ANSWERSuncertainty over the size of cash flows resulting from possible changes in the cost of
raw materials and other inputs (such as lumber, gas, or electricity), as well as cost-related changes in the
market for completed products and other outputs
credit risk - ANSWERSalthough a credit risk is particularly significant for banks and other financial
institutions, it can be relevant to any organization with accounts receivable
, subjective risk - ANSWERSthe perceived amount of risk based on an individual's or organization's opinion
objective risk - ANSWERSthe measurable variation in uncertain outcomes based on facts and data
diversifiable risk - ANSWERSa risk that affects only some individuals, businesses, or small groups
nondiversifiable risk - ANSWERSa risk that affects a large segment of society at the same time
systemic risks - ANSWERSgenerally nondiversifiable - the potential for a major disruption in the function
of an entire market or financial system
hazard risk - ANSWERSarises from property, liability, or personnel loss exposures
1. property risk
2. legal risk
3. personnel risk
4. consequential loss
financial risk - ANSWERSarises from the effect of market forces on financial assets or liabilities
1. market risk
2. credit risk
3. price risk
4. liquidity risk
operational risk - ANSWERSarises from people, processes, systems or controls
1. people risk
2. IT risk
3. management oversight
4. business processes
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