ARM54 Questions With Complete Answers (Graded A+)
Systematic risk Right Ans - Risk that is common to all securities of the same
general class and that therefore cannot be eliminated by diversification
Interest rate risk Right Ans - The risk that a security's future value will
decline because of changes in interest rates
Swap Right Ans - An agreement between two organizations to exchange
payments based on changes in the value of an asset, yield, or index over a
specific period.
Cash matching Right Ans - The process of matching an investment's
maturity value with the amount of expected loss payments
Zero-coupon bond Right Ans - A corporate bond that does not pay periodic
interest income
Reinvestment Risk Right Ans - The risk that the rate at which periodic
interest payments can be reinvested over the life of the investment will be
unfavorable
Commodity price risk Right Ans - The risk associated with a change in the
prices of commodities that are necessary to an organization's operations
Cash flow Right Ans - Cash inflow minus cash outflow
Commodity futures contract Right Ans - A contract either to make or to
accept delivery of a specified quantity of a commodity on a given date
Equity price risk Right Ans - The risk that changes in the price of a stock or
another security will increase or decrease
Call option Right Ans - An option to buy a set amount of the underlying
security at any time within a specified period
Put option Right Ans - An option giving the holder the right to sell a set
amount of the underlying security at any time within a specified period
,Price Risk Right Ans - The potential for a change in revenue or cost because
of an increase or a decrease in the price of a product or an input
Earnings at risk Right Ans - The maximum expected loss of earning within
a specific degree of confidence
Conditional Value at risk Right Ans - A model to determine the likelihood of
a loss given that the loss is greater than or equal to the Value at Risk
Root Cause Right Ans - The event or circumstance that directly leads to an
occurrence
Key risk indicator Right Ans - A financial or nonfinancial metric used to
help define and measure potential losses
Exposure indicator Right Ans - A metric used to identify risk inherent to an
organization's operations
Loss Ratio Right Ans - A ratio that measures losses and loss adjustment
expenses against earned premiums and that reflects the percentage of
premiums being consumed by losses
Control indicator Right Ans - A metric used to identify an organization's
management of risk
Risk optimization Right Ans - A state whereby risk and return are balanced
so that a maximum return is achieved for the level of risk accepted by an
organization
Hedging Right Ans - A financial transaction in which one asset is held to
offset the risk associated with another asset
Monte Carlo Simulation Right Ans - A computerized statistical model that
simulates the effects of various types of uncertainty
Capital Right Ans - The accumulated assets of a business or an owner's
equity in a business
, Equity capital Right Ans - Preferred stock, surplus, common stock,
undivided profits and capital reserves, and net unrealized holding gains (or
losses) on securities that are not available for sale
Leverage Right Ans - The practice of using borrowed money to invest
Generally accepted accounting principles Right Ans - A common set of
accounting standards and procedures used in the preparation of financial
statements to ensure consistency of presentation and reported results
Statutory accounting principles Right Ans - The accounting principles and
practices that are prescribed or permitted by an insurer's domiciliary state
and that insurers must follow
Market value surplus Right Ans - The fair value of assets minus the fair
value of liabilities
Tariff Right Ans - A tax that shields domestic producers from foreign
competition
Demographics Right Ans - The statistical characteristics of human
populations
Political risk Right Ans - Any action by a government that favors domestic
over foreign organizations or poses a threat to foreign organizations
Risk owner Right Ans - An individual accountable for the identification,
assessment, treatment, and monitoring of risks in a specific environment
Key performance indicator Right Ans - Financial or nonfinancial
measurement that defines how successfully an organization is progressing
toward its long-term goals
Key risk indicator Right Ans - A tool used by an organization to measure
the uncertainty of meeting a strategic business objective
P-D-C-A Cycle Right Ans - The P-D-C-A Cycle, also known as the Shewhart
cycle and the Deming cycle, is an expansion of an approach to process
improvement. The steps include Plan, Do, Check, and Act
Systematic risk Right Ans - Risk that is common to all securities of the same
general class and that therefore cannot be eliminated by diversification
Interest rate risk Right Ans - The risk that a security's future value will
decline because of changes in interest rates
Swap Right Ans - An agreement between two organizations to exchange
payments based on changes in the value of an asset, yield, or index over a
specific period.
Cash matching Right Ans - The process of matching an investment's
maturity value with the amount of expected loss payments
Zero-coupon bond Right Ans - A corporate bond that does not pay periodic
interest income
Reinvestment Risk Right Ans - The risk that the rate at which periodic
interest payments can be reinvested over the life of the investment will be
unfavorable
Commodity price risk Right Ans - The risk associated with a change in the
prices of commodities that are necessary to an organization's operations
Cash flow Right Ans - Cash inflow minus cash outflow
Commodity futures contract Right Ans - A contract either to make or to
accept delivery of a specified quantity of a commodity on a given date
Equity price risk Right Ans - The risk that changes in the price of a stock or
another security will increase or decrease
Call option Right Ans - An option to buy a set amount of the underlying
security at any time within a specified period
Put option Right Ans - An option giving the holder the right to sell a set
amount of the underlying security at any time within a specified period
,Price Risk Right Ans - The potential for a change in revenue or cost because
of an increase or a decrease in the price of a product or an input
Earnings at risk Right Ans - The maximum expected loss of earning within
a specific degree of confidence
Conditional Value at risk Right Ans - A model to determine the likelihood of
a loss given that the loss is greater than or equal to the Value at Risk
Root Cause Right Ans - The event or circumstance that directly leads to an
occurrence
Key risk indicator Right Ans - A financial or nonfinancial metric used to
help define and measure potential losses
Exposure indicator Right Ans - A metric used to identify risk inherent to an
organization's operations
Loss Ratio Right Ans - A ratio that measures losses and loss adjustment
expenses against earned premiums and that reflects the percentage of
premiums being consumed by losses
Control indicator Right Ans - A metric used to identify an organization's
management of risk
Risk optimization Right Ans - A state whereby risk and return are balanced
so that a maximum return is achieved for the level of risk accepted by an
organization
Hedging Right Ans - A financial transaction in which one asset is held to
offset the risk associated with another asset
Monte Carlo Simulation Right Ans - A computerized statistical model that
simulates the effects of various types of uncertainty
Capital Right Ans - The accumulated assets of a business or an owner's
equity in a business
, Equity capital Right Ans - Preferred stock, surplus, common stock,
undivided profits and capital reserves, and net unrealized holding gains (or
losses) on securities that are not available for sale
Leverage Right Ans - The practice of using borrowed money to invest
Generally accepted accounting principles Right Ans - A common set of
accounting standards and procedures used in the preparation of financial
statements to ensure consistency of presentation and reported results
Statutory accounting principles Right Ans - The accounting principles and
practices that are prescribed or permitted by an insurer's domiciliary state
and that insurers must follow
Market value surplus Right Ans - The fair value of assets minus the fair
value of liabilities
Tariff Right Ans - A tax that shields domestic producers from foreign
competition
Demographics Right Ans - The statistical characteristics of human
populations
Political risk Right Ans - Any action by a government that favors domestic
over foreign organizations or poses a threat to foreign organizations
Risk owner Right Ans - An individual accountable for the identification,
assessment, treatment, and monitoring of risks in a specific environment
Key performance indicator Right Ans - Financial or nonfinancial
measurement that defines how successfully an organization is progressing
toward its long-term goals
Key risk indicator Right Ans - A tool used by an organization to measure
the uncertainty of meeting a strategic business objective
P-D-C-A Cycle Right Ans - The P-D-C-A Cycle, also known as the Shewhart
cycle and the Deming cycle, is an expansion of an approach to process
improvement. The steps include Plan, Do, Check, and Act
