IC 86 – RISK MANAGEMENT

EXAM
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

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 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

PRACTICE TEST . 4

Question1 Risks results in injury or loss for number of reasons and often in combination of
________ .

(a) Lack of awareness and lack of motivation

(b) Lack of capability and lack of motivation
(c) Lack of capability and lack of awareness
(d) Lack of awareness, lack of motivation and lack of capability
(e) Lack of capability

Correct Answer Lack of awareness, lack of motivation and lack of capability

Answer Risks results in injury or loss for number of reasons and often in combination of lack of
Explanation awareness, lack of motivation and lack of capability.

Question2 What is the primary objective of business continuity planning?

(a) To minimise the risk of delays

(b) To guarantee reliability of standby systems
(c) To protect the organisation in the event where operations are rendered unusable
(d) To provide a sense of security against threats
(e) Both 2 and 3

Correct Answer To protect the organisation in the event where operations are rendered unusable
Answer The primary objective is to protect the organisation in the event that all or part of its
Explanation operations and / or services are rendered unusable.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question3 Which organisation introduced new regulations following a series of high profile
corporate frauds and accounting scandals?

(a) IRDA
(b) Bank of International Settlements
(c) Committee of Sponsoring Organisations
(d) London Stock Exchange
(e) Hampel Committee

Correct Answer London Stock Exchange

Answer In 1992, the London Stock Exchange introduced new regulations following a series of
Explanation high profile corporate frauds and accounting scandals.

Question4 Combination of values exposed to loss, perils causing loss and financial consequences
of loss lead to ______ .

(a) Natural Risks

(b) Speculative Risks
(c) Pure Risks
(d) Emergency
(e) Loss Exposures

Correct Answer Loss Exposures

Answer Combination of values exposed to loss, perils causing loss and financial consequences
Explanation of loss lead to Loss Exposures.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question5 When should a descriptive note on the item be made in the column provided at the end
of the checklist?

(a) Where the answer to a question is 'Y'

(b) Where the answer to a question is 'N'
(c) Where the answer to a question is 'NA'
(d) Where the answer to a question is Unclear
(e) None of the above

Correct Answer Where the answer to a question is Unclear

Answer Answers to each item of the checklist can be either Yes -Y, No -Y or Not Applicable - NA.
Explanation

Question6 Which of the following risks are not managed by CRO?

(a) Operational Risks

(b) Market Risks
(c) Functional Risks
(d) Credit Risks
(e) All of the above

Correct Answer Functional Risks

Answer The Chief Risk Officer (CRO) manages three risks - Market Risks, Operational Risks
Explanation and Credit Risks.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question7 Kiran sold finished goods worth Rs. 10000 to Mohit at a selling price of Rs. 13000.
However, all the sold goods were destroyed by fire before their delivery to the
customer. Determine the amount of loss?

(a) Rs. 10,000

(b) Rs. 13,000
(c) Rs. 23,000
(d) Rs. 3000
(e) NIL

Correct Answer Rs. 13,000

Answer If any finished goods are sold but get damaged or destroyed before their delivery to the
Explanation customer, the loss is the selling price, including profit.

Question8 Proper identification and analysis of loss exposures will depend upon three important
factors. Which of the following is not one of these three factors?

(a) Classification scheme for identifying all possible exposures

(b) Employing proper methods
(c) Establishing organisational objectives
(d) Degree of such exposures in terms of impact on objectives
(e) None of the above

Correct Answer Establishing organisational objectives

Answer Proper identification and analysis of loss exposures will depend upon three important
Explanation factors, which are -
- Classification scheme for identifying all possible exposures
- Employing proper methods
- Degree of such exposures in terms of impact on objectives
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question9 ______ provides a qualitative approach to risk identification which can be employed at
the planning and design stage of a project.

(a) Flow charts

(b) HAZOP
(c) Check lists
(d) Physical inspection
(e) Questionnaire

Correct Answer HAZOP

Answer HAZOP (Hazard and Operability Study) provides a qualitative approach to risk
Explanation identification which can be employed at the planning and design stage of a project. In
this method a plant is divided into a number of smaller parts and each small part is
examined for identifying all the hazards associated with it.

Question10 In prioritising, which are the risks to be addressed first?

(a) Major Risks

(b) Minor Risks
(c) Medium Risks
(d) Moderate Risks
(e) Catastrophe Risks

Correct Answer Catastrophe Risks

Answer Catastrophe Risks may be a small number of risks which can have the most devastating
Explanation effect that it will make it impossible for the business to achieve any of its targets. In
prioritising, these are the risks to be addressed first.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question11 Under which of the following risk attitude category is a person willing to take a chance
of gain against all odds posed by risks?
1. Risk Neutral 2. Risk Averter 3. Risk Preferer

(a) Only 1
(b) Only 2
(c) Only 3
(d) Both 1 and 3
(e) Both 2 and 3

Correct Answer Only 3

Answer Under Risk Preferer category of risk attitude, a person is willing to take a chance of gain
Explanation against the odds posed by risks.

Question12 Which of the following is the cost of replacing the existing property exactly at the
current price?

(a) Market value

(b) Depreciated value
(c) New replacement cost
(d) Reproduction cost
(e) Original cost

Correct Answer Reproduction cost

Answer Reproduction cost is the cost of replacing the existing property exactly at the current
Explanation price.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question13 Which risk identification technique has the biggest advantage of having first-hand
information and avoiding reliance on reports from others?

(a) HAZOP study

(b) Checklists and Questionnaires
(c) Flow Charts
(d) Physical inspection
(e) Study and enquiry through information and documents

Correct Answer Physical inspection

Answer The biggest advantage of physical inspection / survey is of having first-hand
Explanation information and avoiding reliance on reports from others.

Question14 What does the process of risk management generate for a particular organisation, for a
given community and for the entire economy?
1. Benefits 2. Costs 3. Inflation

(a) Only 1
(b) Only 2
(c) Only 3
(d) Both 1 and 2
(e) Both 2 and 3

Correct Answer Both 1 and 2

Answer The process of risk management generates both benefits and costs for a particular
Explanation organisation, for a given community and for the entire economy.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question15 Which risk can arise from ‘confiscation, expropriation, nationalization and deprivation’
of private property by governments?

(a) Speculative Risks

(b) Dictatorship Risks
(c) Political Risks
(d) Social Risks
(e) Natural Risks

Correct Answer Political Risks

Answer Political Risks arise from ‘confiscation, expropriation, nationalization and deprivation’
Explanation of private property by governments.

Question16 The simplest definition of risk management can be the identification, evaluation,
control, prevention and _____ of risk.

(a) Retention
(b) Transfer
(c) Assessment
(d) Protection
(e) Expectation

Correct Answer Transfer

Answer The simplest definition of risk management can be the identification, evaluation,
Explanation control, prevention and transfer of risk.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question17 _______ concepts are generally understood to be covers combining insurance risks with
financial market risks, such as currency, interest rate or equity market risks.

(a) Adverse development covers

(b) Integrated risk management
(c) Insurance securitization
(d) Finite risk reinsurance
(e) Rent-a-captives

Correct Answer Integrated risk management

Answer Integrated risk management concepts are generally understood to be covers combining
Explanation risk financing and financial market risks, such as currency, interest rate or equity
market risks. They are the excellent example of convergence of the insurance and the
capital market.

Question18 Determine the impact on the firm of imagined extreme adverse situations and impacts
include financial, reputational, regulatory, credit ratings etc. What is this process
known as?

(a) Problem post mortem

(b) Trend analysis
(c) Contingency planning
(d) Catastrophic risk transfer
(e) Stress testing

Correct Answer Stress testing

Answer Catastrophic risk management process involves -
Explanation
Trend analysis, Stress testing, Contingency planning, Active catastrophic risk
management, Problem post mortem and Catastrophic risk transfer.
The above mentioned process is of - Stress Testing. Stress tests are often repeated
periodically and changes in the impact on the company from successive tests are noted.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question19 Mega Industries manufactured goods which cost Rs. 50 lakhs and sold these goods to
Sunshine Industries for Rs. 55 lakhs. Unfortunately, all these goods were destroyed in a
fire before they could be delivered. What is the amount of loss for Mega Industries?

(a) No Loss
(b) Rs. 5 lakhs
(c) Rs. 50 lakhs
(d) Rs. 45 lakhs
(e) Rs. 55 lakhs

Correct Answer Rs. 55 lakhs

Answer If the finished goods are sold but get damaged or destroyed before their delivery to the
Explanation customer, the loss is the selling price including profit.

Question20 Probability of occurrence that an event may take place is measured either as decimal or
a fraction or as a percentage but always in a range. The impossible is assigned a value
of Zero & inevitable is assigned a value of _____ .

(a) Ten
(b) One Hundred
(c) One
(d) Fifty
(e) Zero point one

Correct Answer One

Answer The likelihood of an event is assigned a numerical value between 0 and 1 with those
Explanation that are impossible assigned a value of 0 and those that are inevitable assigned a value
of 1.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question21
Which kind of risk is - 'Losses due to Hurricane' ?

1. Physical Risk 2. Dynamic Risk 3. Liability Risk

(a)
Only 1
(b) Only 2
(c) Only 3
(d) Both 1 and 3
(e) Both 2 and 3

Correct Answer Only 1

Answer Physical Risks are those which are caused by Storms, Floods, Hurricanes and such other
Explanation natural phenomena.

Question22 In his book, "Risk, Uncertainty and Profit" , Prof. Frank Knight has mentioned that for
events where the possibility of occurrence can be calculated either on a rational basis
or on the basis of statistical analysis of a number of similar events that have occurred in
the past , are termed as ______ .

(a) Dangers
(b) Risks
(c) Exposures
(d) Uncertainties
(e) Holocaust

Correct Answer Risks

 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question23 This risk management team of Morgan Ltd. wants to limit the effect of losses due to a
fire in their godown by recovering the maximum salvage value of its inventory. Which
phase of an event under a risk management programme is this?

(a) Pre Event phase

(b) Post Event phase
(c) Reporting Phase
(d) Start Up Phase
(e) During Event Phase

Correct Answer Post Event phase

Answer There are three major phases of approach relating to an event i.e. pre event, during
Explanation event and post or following event. To limit the effect of losses due to a fire in godown
by recovering the maximum salvage value of its inventory falls under Post or following
event. It is aimed at minimising the extent of loss and maximizing the salvage.
The Prospective finite risk reinsurance covers provide protection against the
contingencies associated with future loss events.

Question24 A __________ person reacts to risk in line with its statistical probability i.e. with the
likelihood of its occurrence. He tries to neutralize or balance the chance of loss against
the chance of gain.

1. Risk Averter 2. Risk Neutral 3. Risk Preferer

(a) Only 1
(b) Only 2
(c) Only 3
(d) Both 2 and 3
(e) Both 1 and 2

Correct Answer Only 2

Answer A risk neutral person tries to neutralize or balance the chance of loss against the chance
Explanation of gain. He reacts to risk in line with its statistical probability. For eg. if he has to bet on
the result of a match between two teams, he would bet an equal amount on both the
teams.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question25 Below is a list of three major industrial disasters. Arrange them in a sequence starting
from the first –
1. Mina Mata Mercury Disaster (Japan)
2. Bhopal Gas Tradegy (India)
3. Triangle Factory Fire - New York (USA)

(a) 3, 1 and 2
(b) 2, 1 and 3
(c) 1, 3 and 2
(d) 3, 2 and 1
(e) 1, 2 and 3

Correct Answer 3, 1 and 2

Answer Triangle factory fire New York (USA) 1911 occurred 1st, then Mina Mata Mercury
Explanation Disaster (Japan) 1932-68 and lastly, Bhopal Gas tragedy (India) 1984.

Question26 Which of the following is NOT an example of Natural Peril?

(a) Extreme High Temperatures

(b) Sabotage
(c) Volcanoes
(d) Meteors
(e) Uncontrolled Vegetation

Correct Answer Sabotage

Answer Natural perils are the perils which are beyond the capabilities of human beings like
Explanation cyclone, floods, earthquakes etc. & are called Act of God perils. These perils include
uncontrolled vegetation, meteors, avalanche, volcanoes and extreme temperatures.
Sabotage on the other hand is the act of deliberately destroy, damage, or obstruct
(something), especially for political or military advantage.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question27 Identify the strategic objectives of ERM –

1. Strategic high level goals: designed to support the entity’s mission or vision
2. Operations: Efficiency of operations, including achievement of performance goals
and safe guarding against loss
3. Reporting: reliable financial and operational data and reports
4. Compliance: with laws and regulation

(a) 1,3 and 4

(b) 2,3 and 4
(c) 2 and 3
(d) 1,2 and 4
(e) All 1,2,3 and 4

Correct Answer All 1,2,3 and 4

Answer Strategic high level goals designed to support the entity’s mission or vision, efficiency of
Explanation operations, including achievement of performance goals and safe guarding against loss,
reporting reliable financial and operational data and reports and compliance with laws
and regulations are all categories of objectives of ERM.
Proactive measures to limit the extent of any loss and to maximize the recovery from
loss include burglar alarms, sprinklers installation and salvage operations. Construction
of automatic fire doors, curtain boards etc. would fall under passive method.

Question28 Which of the following criteria should NOT be taken into consideration while selecting
the best technique for risk management?
(a) Feasibility
(b) Maximizing cash flows
(c) Cost effectiveness
(d) Getting highest profitability
(e) Effectiveness

Correct Answer Getting highest profitability

Answer The criteria for selecting the best technique for risk management depend upon financial
Explanation or other objectives. It should take into consideration cost effectiveness, feasibility,
effectiveness and maximizing cash flows.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question29 Integrated Risk Management concepts are generally understood to be covers

combining ______ and ______ .
(a) Risk financing and Risk Elimination techniques
(b) Risk identifying and Risk transfer techniques
(c)
Risk financing and Financial market risks techniques
(d)
Risk transfer and Risk mitigation techniques
(e)
Risk identifying and Risk Elimination techniques

Correct Answer
Risk financing and Financial market risks techniques
Answer
Integrated risk management concepts are generally understood to be covers combining
Explanation
risk financing and financial market risks techniques. They are the excellent example of
convergence of the insurance and the capital market.

Question30 In Mumbai, during monsoons, flooding can cause a loss. What type of risk is this?

1. Market Risk 2. Physical Risk 3. Social Risk

(a) Only 1
(b) Only 2
(c) Only 3
(d) 1 and 2
(e) 1 and 3

Correct Answer Only 2

Answer Risk is classified under various categories. Flood or all other natural phenomena’s falls
Explanation under the category of Physical Risk.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question31 Which of the following objectives are met by Integrated Risk Management ?

1. ‘Bottom Line’ comprehensive balance sheet protection

2. Protection against downside risk and major fluctuations of operating result
3. Better use of capacity by excluding over hedging effects

(a) Only 1
(b) Only 2
(c) Both 1 and 3
(d) Both 2 and 3
(e) All 1,2 and 3

Correct Answer All 1,2 and 3

Answer Integrated risk management seeks to meet the following objectives:
Explanation
‘Bottom Line’ comprehensive balance sheet protection
Protection against downside risk and major fluctuations of operating result
Better use of capacity by excluding over hedging effects

It’s a risk management approach which is trying to optimize the coverage of risks on the
asset as well as on the liability side of the balance sheet.

Question32 What measures the likely probability of a risk actually occurring and its likely quantum
of loss if the risk were to actually occur.

(a) Risk Prevention

(b) Risk Control
(c) Risk Evaluation
(d) Risk Identification
(e) Risk Assessment

Correct Answer Risk Evaluation

Answer Risk Evaluation estimates the likely probability of risk occurrence and its likely severity.
Explanation
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question33 As per Enterprise Risk Management (ERM), which of these is a strategy to respond to
risks?
1. Acceptance of risks 2. Avoidance of risks 3. Taking alternative actions

(a) Only 1
(b) Only 2
(c) Only 3
(d) Only 2 and 3
(e) All 1, 2 and 3

Correct Answer All 1, 2 and 3

Answer The ERM may be different from organisation to organisation; there is a single, common
Explanation fundamental process. The risk management actions consist not only of risk avoidance &
mitigation, but include risk acceptance and even the risk seeking activities. It also
suggests the alternative actions to be taken.

Question34 The purpose of loss control management is ________ .

(a) To minimise the total cost of losses

(b) To prevent all type of losses
(c) To transfer the risk
(d) To pay for the losses
(e) To try for maximum profitability of the entity

Correct Answer To minimise the total cost of losses

Answer The purpose of loss control management is to limit the total cost of losses to a lowest
Explanation possible level by preventing losses from happening, protecting people/ property,
limiting the extent of loss and maximizing the recovery.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question35 Which of these are considered as Associated Risks for a business organisation?
1. Business interruption
2. Political violence
3. Currency in-convertibility or Non Transfer

(a) Only 2
(b) Both 1 and 2
(c) Both 2 and 3
(d) Both 1 and 3
(e) All 1,2 and 3

Correct Answer All 1,2 and 3

Answer Companies & individuals are associated with various risks which includes currency
Explanation inconvertibility, political violence/war and business interruption. Some other risks are
contract frustration, forced abandonment, Non honouring of Letters of credit etc.

Question36 Identify the insurance based risk financing tools –

1. Weather Derivatives 2. Risk Retention groups 3. Credit securitization

(a) Only 1
(b) Only 2
(c) Only 3
(d) Both 2 and 3
(e) All 1,2 and 3

Correct Answer Only 2

Answer Risk retention groups is an insurance based risk financing tools being alternative to
Explanation insurance companies. Weather derivatives and Credit securitization on the other hand,
are alternative to insurance products.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question37 What is the reason behind the difficulty in comparing the risk management costs with
costs in similar organisation?
1. Because some companies may consider such costs as overhead expenses, whereas
some others may allocate them to different profit centers
2. Because of different system of cost allocation followed by different companies
3. Because some companies spend more on risk management and other companies
spend less

(a) Only 1
(b) Only 2
(c) Only 3
(d) Only 1 and 2
(e) All 1,2 and 3

Correct Answer Only 1 and 2

Answer Sometimes, people are tempted to compare risk management costs with such costs in
Explanation similar organisations in order to judge the efficiency of the programme. However, such
comparisons become difficult for the reasons of different systems of cost allocation
followed by different companies.

Some companies may consider such costs as overhead expenses, whereas some others
may allocate them to different profit centers.

Question38 What does finite risk reinsurance products combine?

(a) Risk financing and risk transfer

(b) Risk transfer and risk mitigation
(c) Risk financing and risk mitigation
(d) Risk identifying and risk transfer
(e) Risk identifying and risk mitigation

Correct Answer Risk financing and risk transfer

Answer The finite risk reinsurance products combine the risk financing and risk transfer
Explanation techniques. It’s a second generation of finite risk reinsurance product.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question39 The measures to limit the extent of any loss and to maximize the recovery from loss
is/are - 1. Active 2. Passive 3. Proactive

(a) Only 1
(b) Only 2
(c)
Only 3
(d)
Only 1 and 2
(e)
Only 2 and 3

Correct Answer
Only 2 and 3
Answer There are two basic types to limit the extent of any loss & to maximize the recovery
Explanation from the loss i.e. Passive & Proactive.
Proactive measures to limit the extent of any loss and to maximize the recovery from
loss include burglar alarms and sprinklers installation.
Under passive type, the nature of the measure itself limits the loss without any change
in state i.e. walls, automatic fire doors etc.

Question40 The concept and process of Risk Management does NOT include ______ .

(a) Identification of risk

(b) Control and prevention of risk
(c) Transfer of risk
(d) Evaluation of risk
(e) Complete elimination of risk

Correct Answer Complete elimination of risk

Answer The risk management concept revolves around identification, evaluation, control and
Explanation prevention and transfer of risk. It is impossible that there could be a situation where
there are complete chances of risk elimination. Therefore, concept of risk management
shall not include complete elimination of risk.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question41 CAT bonds, Credit securitization, Weather derivatives and Finite risk products - these
are examples of ______ .
1. Risk Retention Groups
2. Alternatives to insurance products
3. Insurance products

(a) Only 1
(b) Only 2
(c) Only 3
(d) Both 1 and 3
(e) All 1,2 and 3

Correct Answer Only 2

Answer CAT bonds, Credit securitization, Weather derivatives and Finite risk products are
Explanation examples of Alternatives to insurance products. Many of these instruments are
products of the capital markets.

Question42 Mr. Sinha is a very safe driver. he would mostly choose a auto insurance with a ______ .

(a) High premium and Low deductible

(b) Low premium and Low deductible
(c) High premium and Nil deductible
(d) Low premium and High deductible
(e) High premium and High deductible

Correct Answer Low premium and High deductible

Answer For a safe driver like Mr. Sinha, he would most likely choose an auto insurance policy
Explanation with a low premium and high deductible as he would be able to afford the financial
consequences of related event occurring.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question43
________ is not an example of Funded traditional contingent capital tool.
(a)
Captives
(b) Banking products
(c) Income/Asset Swaps
(d) Securitisation
(e) Contingent Debt

Correct Answer Captives

Answer Securitization, Banking products, Contingent debt, Contingent liabilities and Income /
Explanation Assets swaps are the example of Funded traditional contingent capital tool whereas
Captives is an example of Alternate risk finance.

Question44 A business faces the possibility that it will be held legally liable for property damage or
personal injuries suffered by others. This is known as ________ .

(a) Static loss exposure

(b) Liability loss exposure
(c) Property loss exposure
(d) Personal loss exposure
(e) Property and personal loss exposure

Correct Answer Liability loss exposure

Answer A business is exposed to property and net income loss exposure. The business also
Explanation faces a possibility that it will be held liable for property damages or personal injuries
suffered by others. This is called liability loss exposure. The liability arises out of failure
to discharge duty of care.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question45 Future Engineers Ltd. bought an insurance for its machinery with a 10% deductible.
Which type of two risk management techniques did the management of Future
Engineers Ltd. use?

(a) Risk mitigation and Risk retention

(b) Risk mitigation and Risk transfer
(c) Risk avoidance and Risk retention
(d) Risk avoidance and Risk mitigation
(e) Risk transfer and Risk retention

Correct Answer Risk transfer and Risk retention

Answer After purchasing the machinery, Future Engineers have transferred their risk to the
Explanation insurance company by taking insurance. At the same time they have opted for 10%
deductible which means they are willing to share the loss to the extent of 10%.
Effectively it demonstrates that they are retaining 10% risk (or loss) to be born from
each of claim amount. This is risk transfer and risk retention.

Question46 _______ is associated with changes in human wants and improvements in machinery or
technological innovations.

(a) Liability Risk

(b) Fundamental Risk
(c) Pure Risk
(d) Dynamic Risk
(e) Static Risk

Correct Answer Dynamic Risk

Answer The risks which are associated with changes in human wants and improvements in
Explanation machinery or technological innovations are called Dynamic Risks. This is often
associated with changes in society & arises from market, management or political
forces which can result into either profit or loss.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Question47 Which of the following is NOT a reason to plan for a recovery?

(a) To save time

(b) Reduction of damage
(c) Protection of lives
(d) Maximize disruptions
(e) Reduction of stress

Correct Answer Maximize disruptions

Answer Protection of lives, Reduction of damage, Reduction of stress and Saving the valuable
Explanation time are the reasons to plan for a recovery. Maximizing disruptions can never be the
reason to plan for a recovery.

Question48 Alternative risk transfer and financing techniques, as we see them today, basically fall
into which of the following categories?
1. Finite Risk Reinsurance
2. Insurance securitisation and insurance derivatives
3. Weighted risk management and insuratisation

(a) 1 and 2
(b) 2 and 3
(c) 1 and 3
(d) All 1,2 and 3
(e) Only 2

Correct Answer 1 and 2

Answer Alternative risk transfer and financing techniques basically fall into the following four
Explanation categories -
1. Finite risk reinsurance
2. Integrated risk management and insuratization
3. Insurance securitisation and insurance derivatives
4. Contingent capital
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PRACTICE TEST . 4

Question49 ________ is not an example of self-insurance method of mitigating/financing risk.

(a) Self-Insurance and reserves

(b) Risk Retention groups
(c) Cooperatives
(d) Pools
(e) Spread Loss Treaties

Correct Answer Spread Loss Treaties

Answer Cooperatives, Self-insurance and Reserves, Pools and Risk Retention Groups are
Explanation example of Self-insurance method of mitigating/financing risk. Spread loss treaties are
the examples of Alternate risk financing.

Question50 Protected cell companies and Rent-a-captives are examples of ________ .

(a) Finite Risk
(b) Transferred Risk
(c) Contingent capital
(d) Self-insurance
(e) Captives

Correct Answer Captives

Answer Under Alternate Risk Financing- Protected cell companies, Rent-a-captives and Captives
Explanation are examples of Captives.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4

Practice Question Banks also available for :

INSURANCE EXAMS

IC 01 – Principles of Insurance
IC 02 – Practice of Life Insurance
IC 11 – Practice of General Insurance
IC 14 – Regulation of Insurance Business
IC 26 – Life Insurance Finance
IC 27 – Health Insurance
IC38 – Insurance Exams
IC 45 – General Insurance Underwriting
IC 46 – General Insurance Accounts
IC 72 – Motor Insurance

NISM EXAMS

NISM Series I: Currency Derivatives Certification Exam

NISM Series V A: Mutual Fund Distributors Certification Exam
NISM Series VI: Depository Operations Certification Exam
NISM Series VII: Securities Operations and Risk Management
NISM Series VII: Equity Derivatives Certification Exam
NISM Series III A: Securities Intermediaries Compliance Certification Exam
NISM Series X A : Investment Adviser (Level 1) Certification Exam
NISM Series X B: Investment Adviser (Level 2) Certification Exam
NISM Series X V: Research Analyst Certification Exam
NISM II A – Registrar to an Issue & Share Transfer Agent
NISM IV – Interest Rate Derivatives Certification Exam

NCFM

NCFM Financial Markets: A Beginners Module

NCFM Capital Market (Dealers) Module
NSE FIMMDA : Debt Market (Basic) Module
NCFM Derivative Market (Dealers) Module
IC 86 – RISK MANAGEMENT
PRACTICE TEST . 4