1. The concept of "moral hazard" refers to:
A. The risk of financial loss due to unethical behavior by
employees
B. The likelihood of a natural disaster occurring in a given
location
C. The possibility of higher risks being taken because of the
presence of insurance
D. The challenges posed by changing market conditions
Answer: c) The possibility of higher risks being taken because of
the presence of insurance
Rationale: Moral hazard occurs when individuals or companies
take on more risk because they know they are protected from the
financial consequences, such as through insurance.
2. A company diversifies its business by expanding into a new
geographic market. This strategy addresses which type of risk?
A. Operational risk
B. Strategic risk
C. Financial risk
D. Compliance risk
Answer: b) Strategic risk
,Rationale: Strategic risks arise from the company’s choices related
to long-term objectives. Expanding into a new geographic market
is a strategic decision that exposes the company to risks from new
competition, market conditions, and regulations.
3. Which of the following would most likely require an
organization to implement "crisis management" strategies?
A. A decline in employee morale
B. A major product recall due to safety issues
C. A minor system error in the IT department
D. A change in government tax policies
Answer: b) A major product recall due to safety issues
Rationale: Crisis management strategies are required when a
significant, potentially damaging event occurs, such as a product
recall that threatens consumer safety and the company’s
reputation.
4. In risk management, "probability" refers to:
A. The overall cost of managing a particular risk
B. The likelihood of a risk event occurring
C. The effectiveness of risk control measures
D. The financial loss associated with a risk
Answer: b) The likelihood of a risk event occurring
, Rationale: Probability is the measure of how likely a particular
risk is to occur, helping determine the urgency and importance of
addressing it.
5. In the context of risk management, "risk control" refers to:
A. Eliminating the risk
B. Accepting the risk and planning for its consequences
C. Taking actions to reduce the frequency or impact of risks
D. Transferring the risk to a third party
Answer: c) Taking actions to reduce the frequency or impact of
risks
Rationale: Risk control focuses on minimizing the likelihood and
severity of risks. This can be achieved through safety programs,
training, or preventive measures.
6. In risk management, which of the following best describes "risk
avoidance"?
A. Transferring the risk to another party
B. Reducing the likelihood of the risk occurring
C. Taking steps to eliminate the risk altogether
D. Accepting the risk and managing the consequences
Answer: c) Taking steps to eliminate the risk altogether
A. The risk of financial loss due to unethical behavior by
employees
B. The likelihood of a natural disaster occurring in a given
location
C. The possibility of higher risks being taken because of the
presence of insurance
D. The challenges posed by changing market conditions
Answer: c) The possibility of higher risks being taken because of
the presence of insurance
Rationale: Moral hazard occurs when individuals or companies
take on more risk because they know they are protected from the
financial consequences, such as through insurance.
2. A company diversifies its business by expanding into a new
geographic market. This strategy addresses which type of risk?
A. Operational risk
B. Strategic risk
C. Financial risk
D. Compliance risk
Answer: b) Strategic risk
,Rationale: Strategic risks arise from the company’s choices related
to long-term objectives. Expanding into a new geographic market
is a strategic decision that exposes the company to risks from new
competition, market conditions, and regulations.
3. Which of the following would most likely require an
organization to implement "crisis management" strategies?
A. A decline in employee morale
B. A major product recall due to safety issues
C. A minor system error in the IT department
D. A change in government tax policies
Answer: b) A major product recall due to safety issues
Rationale: Crisis management strategies are required when a
significant, potentially damaging event occurs, such as a product
recall that threatens consumer safety and the company’s
reputation.
4. In risk management, "probability" refers to:
A. The overall cost of managing a particular risk
B. The likelihood of a risk event occurring
C. The effectiveness of risk control measures
D. The financial loss associated with a risk
Answer: b) The likelihood of a risk event occurring
, Rationale: Probability is the measure of how likely a particular
risk is to occur, helping determine the urgency and importance of
addressing it.
5. In the context of risk management, "risk control" refers to:
A. Eliminating the risk
B. Accepting the risk and planning for its consequences
C. Taking actions to reduce the frequency or impact of risks
D. Transferring the risk to a third party
Answer: c) Taking actions to reduce the frequency or impact of
risks
Rationale: Risk control focuses on minimizing the likelihood and
severity of risks. This can be achieved through safety programs,
training, or preventive measures.
6. In risk management, which of the following best describes "risk
avoidance"?
A. Transferring the risk to another party
B. Reducing the likelihood of the risk occurring
C. Taking steps to eliminate the risk altogether
D. Accepting the risk and managing the consequences
Answer: c) Taking steps to eliminate the risk altogether
