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ARM 54 Assignment 4 (Operational, Financial, And Strategic Risk) – Q’s & A’s
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ARM 54 Assignment 4 (Operational, Financial, And Strategic Risk) – Q’s & A’s
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ARM 54 Assignment 4 (Operational, Financial, AndStrategic Risk) – Q’s & A’s
Basel II categories of operational risk Right Ans - -people
-process
-systems
-external events
Strategies that can be used to mitigate operational risk associated with people
Right Ans - -recruitment
-selection procedures
-training and development of employees
-performance management
-incentives
-succession planning
Process Risk Right Ans - risk associated with procedures and practices
organizations use to conduct their business activities
Process risk management Right Ans - A framework of procedures and a
mechanism to identify practices that deviate from those procedures.
Types of systems risk Right Ans - technology and equipment
Root cause Right Ans - The event or circumstance that directly leads to an
occurrence.
Key risk indicator (KRI) 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
leading rather than lagging Right Ans - requirement for KRIs to be effective
risk indicators for the operational risk class of people Right Ans - -
education
-experience
-staffing levels
-employee surveys
-customer surveys
-compensation and experience benchmarked to industry
-incentives such as bonuses
-authority levels
-management experience
risk indicators for the operational risk class of processes Right Ans - -
quality scorecards
-analysis of errors
-areas of increased activity or volume
-review of outcomes
-internal and external review
-identification of areas of highest risk
-quality of internal audit procedures
risk indicators for the operational risk class of systems Right Ans - -
benchmarks against industry standards
-internal and external review
-analysis to determine stress points and weaknesses
-identification of areas of highest risk
-testing
-monitoring
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.
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