IC 86 – RISK MANAGEMENT

EXAM
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

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 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

PRACTICE TEST . 3

Question1 Which is a licensed insurance company established by a non-insurance parent company

to insure the risks of the parent company?

(a) Captive Insurer

(b) Credit Securitisation
(c) Self insurance groups
(d) Risk Retention groups
(e) Co-operatives

Correct Answer Captive Insurer

Answer Captive Insurer is a licensed insurance company established by a non-insurance parent
Explanation company to insure the risks of the parent company.

Question2 Which of the following is an example of environmental disaster?

(a) Workplace violence

(b) Loss of water supply
(c) Strikes
(d) Failure of internal power
(e) Drought

Correct Answer Drought

Answer Drought is an example of environmental disaster.
Explanation
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question3 One of the basic components of risk management is Risk Financing. It means -
(a) Determining what the cost of risk is likely to be or might be and ensuring that adequate
financial resources are available
(b) Measures to avoid occurrence of risk, limit its severity and reduce its consequences
(c) Estimating the likely probability of a risk occurrence and its likely severity
(d) The recognition / anticipation of risks that threaten the assets and earnings of business
enterprises
(e) None of the above

Correct Answer Determining what the cost of risk is likely to be or might be and ensuring that adequate
financial resources are available

Question4 Which of the following statements is INCORRECT with regards to the risk management
contributions to business profits?
(a) Risk management can make it possible to continue operations following a loss
(b) Risk management can reduce the fluctuations in annual profits and cash flows
(c) Employees do not prefer to work for firms managing pure risks
(d) Successful management of pure risks permits to investigate and assume attractive
speculative risk
(e) None of the above

Correct Answer Employees do not prefer to work for firms managing pure risks
Answer The Risk Management plan may help employees who would be affected by loss to the
Explanation firm. Risk management can also help satisfy the firm's sense of social responsibility or
desire for a good public image. Employees prefer to work for such firms.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question5 Name the tools that transfer insurance risk in an insurance bond or derivative format to
capital market investors, rather than to the reinsurance market.

(a) Equity shares only

(b) Insurance securitisation only
(c) Derivatives only
(d) Insurance securitisation and derivatives
(e) Insurance securitisation, derivatives and Equity shares

Correct Answer Insurance securitisation and derivatives

Answer Insurance securitisation and derivatives are tools that transfer insurance risk in an
Explanation insurance bond or derivative format to capital market investors, rather than to the
reinsurance market.

Question6 What is the function of a risk policy statement?

(a) To audit risk management capabilities

(b) To emphasis the function of risk management
(c) To provide a framework for assessing responsibility for accounting losses
(d) To plan and mitigate probable risks and uncertainties
(e) All of the above

Correct Answer To emphasis the function of risk management

Answer The functions of a risk policy statement are –
Explanation
Emphasizes the function of risk management
Provides framework for assessing responsibility for controlling / financing losses
States risk management department’s position in the organization structure
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question7 In accordance with the eight components of COSO framework, four categories of risk
response include avoidance, acceptance, reduction and _______ .

(a) Analysis
(b) Sharing
(c) Evaluation
(d) Mitigation
(e) Transfer

Correct Answer Sharing

Answer Four categories of risk response include avoidance, acceptance, reduction and sharing.
Explanation

Question8 Which phase of the disaster may last from a few days to several months after a disaster
and ends when normal operations can restart?

(a) Restoration phase

(b) Recovery phase
(c) Crisis phase
(d) Calamity phase
(e) Emergency response phase

Correct Answer Recovery phase

Answer The Recovery Phase may last from a few days to several months after a disaster and
Explanation ends when normal operations can be restarted in the affected premises or replacement
premises, if appropriate.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question9 A possible alternative to the actual site visit is completion of a checklist or some sort of
questionnaire. Identify the limitation of this risk identification technique.

(a) Easy to change

(b) Feedback may not be on time
(c) Facilitates quick comparison
(d) Reasonably inexpensive
(e) None of the above

Correct Answer Feedback may not be on time

Answer The Check list / Questionnaire is filled by somebody other than risk manager. So there
Explanation is always a possibility that the feedback may not be on time.

Question10 In accordance with COCA, which of the following are intended to convey self-imposed
duties?

(a) Agreements
(b) Commitments
(c) Obligations
(d) Contracts
(e) Both 2 and 3

Correct Answer Commitments

Answer Commitments are intended to convey self-imposed duties.
Explanation
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question11 The _________ is a diagrammatic representation of all events which may give rise to
some major event which can cause a loss or damage.
(a) Flow Chart
(b) Fault Tree
(c) Study and Enquiry
(d) Organizational charts
(e) Hazard and operability (HAZOP) study

Correct Answer Fault Tree

Answer The Fault Tree is a diagrammatic representation of all the events which may give rise to
Explanation some major event which may cause loss or damage. It shows the way in which
individual events can combine together to produce a dangerous situation. Under this
method, all aspects of the problem is considered, including quantification of likelihood.

Question12 In accordance with the concise oxford dictionary, risk is defined as _____ .

(a) The degree of probability of loss

(b) Exposure to mischance
(c) Chance of loss or injury
(d) The effect of uncertainty on objectives
(e) None of the above

Correct Answer Exposure to mischance

Answer In accordance with the concise oxford dictionary, risk is defined as hazard, chance of
Explanation bad consequences, loss etc., exposure to mischance.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question13 The main goal of ART was _______ by means of risk management solutions by
deploying self-financing mechanisms.

(a) To analyse entire risk

(b) To retain more risks
(c) To accept total risk
(d) To eliminate entire risk
(e) To transfer total risk

Correct Answer To retain more risks

Answer The main goal of ART (Alternative Risk Transfer) was to retain more risk by means of
Explanation risk management solutions by deploying self-financing mechanisms.

Question14 Identify the INCORRECT statement with regards to ERM.

(a) ERM is meant to apply merely to insurance companies / financial institutions

(b) ERM is intended to become an integral part of how an organisation operates
(c) ERM stresses on value creation
(d) ERM's goal is seeking an appropriate risk-return position
(e) None of the above

Correct Answer ERM is meant to apply merely to insurance companies / financial institutions

Answer ERM is a risk based approach, in which risk is not limited to a set of financial or
Explanation insurance risks.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question15 Loss of gas supply is an example of ______ .

(a) System failure

(b) Man made disaster
(c) Environmental disaster
(d) Deliberate disruption
(e) Loss of utilities and services

Correct Answer Loss of utilities and services

Answer Loss of gas supply is an example of loss of utilities and services.
Explanation

Question16 Which technique is developed by economists for tracing the flow of goods and services
through an economy?

(a) Fault Trees

(b) HAZOP study
(c) Input Output analysis
(d) Flow charts
(e) Organisational charts

Correct Answer Input Output analysis

Answer Input Output analysis is a technique developed by economists for tracing the flow of
Explanation goods and services through an economy and can equally be used for identifying -
- The contribution which different sections of an organisation make to total earnings

- Inter dependencies between such sections

 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question17 ________ activity/activities are conducted at the Risk Treatment stage.

1. Risk Elimination 2. Risk Reduction 3. Risk Transfer

(a) Only 1 and 2

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

Correct Answer All 1,2 and 3

Answer In the Risk Treatment stage of the Risk Management process, the following activities
Explanation are conducted -
- Elimination
- Reduction
- Limitation
- Transfer

Economic obsolescence of an asset is due to _______ .

Question18
1. Change in fashion 2. Development of new efficient machinery 3. Wear and tear

(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 Economic obsolescence of an asset is due to change in fashion or development of new,
Explanation more efficient machinery.
Physical depreciation is the result of age plus wear and tear of an asset.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question19 When was the 'Basel II ' Accord formed ?

(a) 2000
(b) 2004
(c) 2007
(d) 2008
(e) 2010

Correct Answer 2004

Question20 There are five steps in a Risk Management decision making process. Which is the first
step?

(a) Selecting the best technique

(b) Implementing the selected technique
(c) Monitoring & improving the programme
(d) Identifying & Analyzing loss exposure
(e) Examining the feasibility of alternative risk management techniques

Correct Answer Identifying & Analyzing loss exposure

Answer The five steps in a Risk Management decision making process are -
Explanation
1. Identifying & Analyzing loss exposure
2. Examining the feasibility of alternative risk management techniques
3. Selecting the best technique
4. Implementing the selected technique
5. Monitoring & improving the programme
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question21 Which of these are examples of Natural Perils?

1. Nuclear Fission 2. Avalanche 3. Soil Erosion

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

Correct Answer Only 2 and 3

Answer Natural perils are also known as Acts of God perils and involve no human intervention.
Explanation Avalanche and Soil Erosion are Natural Perils.
Nuclear fission is a Human peril.

Question22 This person welcomes the existence of risk and uncertainty. He is willing to take chance
of gain against the odds posed by risks. Under which category of risk attitude can this
person are classified?
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 3

Answer As per the catergories of Risk Attitude - A Risk Preferer actually welcomes the existence
Explanation of risk and uncertainty. He is willing to take chance of gain against the odds posed by
risks.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question23 The liability which arises due to negligence can be classified under _______ .

(a) Indemnity law

(b) Law of equity
(c) Common law duty
(d) Statute law
(e) Law of intellectual property

Correct Answer Common law duty

Answer The term liability is synonymous with responsibility. A person is obliged to others to do
Explanation or not to do something. Common law in essence is a series of duties to others which are
matter of common sense.

Question24 Which of these is NOT an example of Economic Peril?

(a) Changes in consumer tastes and behaviour

(b) Terrorism
(c) Stock Market Decline
(d) Technological advances
(e) Consequences of strikes and riots

Correct Answer Terrorism

Answer Generally, the various perils causing losses can be broadly classified into three groups
Explanation i.e. Natural perils, Human perils & Economic perils. Terrorism is an example of Human
peril. Rest all are Economic Perils.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question25 Identify which of these is/are examples of Risk Transfer under risk financing?

1.Commercial Insurance 2. Forming a trust 3. Hedging

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

Correct Answer Only 1 and 2

Answer Commercial insurance and forming a trust are the effective tools of risk transfer under
Explanation risk financing for any organisation.

Question26 Sovitech Industries manufactures a product in which poisonous dust particles are
released in the manufacturing unit. What precaution should be taken to protect the
workers from these particles?
1. The workers should wear safety belts
2. The workers should wear clothes which shield them
3. The workers should wear safety masks

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

Correct Answer Only 3

Answer If the workers are exposed to poisonous dust particles, use of safety masks can be
Explanation taken for protection from the same.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question27 Which person(s) is/are primarily responsible for the risk management of a firm?
1. Risk Manager 2. Chairman 3. Auditor
(a) Only 1
(b) Only 3
(c)
Both 1 and 3
(d)
Both 2 and 3
(e)
Both 1 and 2

Correct Answer
Only 1
Answer
A person who primarily holds responsibilities for an organisation’s risk management
Explanation
programme is referred as risk management professional and is often called as risk
manager.

Question28 Which of these statement is correct with respect to SPECULATIVE RISK?

(a) Speculative risk arise due to price reduction or where purchase and sale constraints are
involved
(b) Speculative risk is connected with losses caused by the irregular action of the forces of
the nature or the mistakes and misdeeds of human beings
(c) In Speculative risk, there is only loss and no chance of profit
(d) In Speculative risk, there is a chance of a profit as well as loss
(e) Speculative risk are those which affect large portion of the society and arise from
natural disaster or changes in political system

Correct Answer In Speculative risk, there is a chance of a profit as well as loss

Answer Speculative risks are those risks when there is a chance of gain as well as loss. Gambling
Explanation and investing in the stock market are two examples of speculative risks
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question29 Under which risk category does Risk of ill health, Risk of unemployment and Risk of
early death fall?

(a) Fundamental Risk

(b) Static Risk
(c) Pure Risk
(d) Physical Risk
(e) Personal Risk

Correct Answer Personal Risk

Answer Risk of ill health, Risk of unemployment and Risk of early death are examples of
Explanation personal risk which refers to potential loss to the person.

Question30
Which type of perils is also known as ‘Acts of God’?
(a)
Fundamental Perils
(b)
Natural perils
(c) Moral perils
(d) Human perils
(e) Social perils

Correct Answer Natural perils

Answer Natural perils are the perils which are beyond the capabilities of human beings like
Explanation cyclone, floods, earthquakes etc. These are called Act of God perils.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question31 Mr. Anil has incurred some costs for risk management. Guide him as to how these costs
have to be treated-
1. Mr. Anil can allocate these expenses to different profit centers
2. Mr. Anil can create a business vertical for risk management activities and allocate
the costs to this vertical
3. Mr. Anil can treat them as overhead expenses

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

Correct Answer Both 1 and 3

Answer Risk management of its own is neither a profit center nor a business vertical which can
Explanation support its own cost.
Therefore costs related to risk management must be treated as overhead expenses and
should be allocated to different profit centers.

Question32 Which of these is a 'Licensed insurance company established by is a non-insurance

parent company to insure the risks of the parent company, its affiliates or other entities
doing business closely with the parent company'?

(a) Risk Retention Group

(b) Captive Insurer
(c) Contingent capital
(d) Securitization
(e) Insurance pool

Correct Answer Captive Insurer

Answer Captive insurer is a licensed insurance company established by is a non-insurance
Explanation parent company to insure the risks of the parent company, its affiliates or other entities
doing business closely with the parent company. It has number of advantages over
traditional insurance cover.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question33 What is 'Personal Risk'?

(a) Risk due to changes in human wants
(b) Potential liability for any individual or institution
(c) Potential loss to the property
(d) Potential loss to the persons
(e) Risk due to storm, tempest, flood, hurricane etc.

Correct Answer Potential loss to the persons

Answer Risk is classified under various heads and the Personal Risk can be defined as 'potential
Explanation loss to the persons'.

Question34 The process of Risk Management involves either –

1. Preventing losses
2. Minimising losses
3. Paying for those losses which will inevitably occur

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

Correct Answer All 1,2 and 3

Answer The process of risk management involves either preventing/ minimizing losses or
Explanation paying for those losses which will inevitably occur. The former technique i.e. preventing
/ minimizing loss relates to risk control and the later i.e. paying for those losses which
will inevitably occur, relates to risk financing.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question35 In Consequential loss analysis (Manufacturing), property values at risk should be

detailed for each block showing - 1. Buildings 2. Stock 3. Plant and Machinery
(a) Only 1
(b) Only 2
(c) Only 3
(d) Both 2 and 3
(e) All 1,2 and 3

Correct Answer All 1,2 and 3

Answer In a consequential loss analysis for a manufacturing company, property values at risk
Explanation should be detailed for each block of buildings, plant and machinery and stock - To
correspond with the block diagram.

Question36 Which of the following formed an independent national commission to undertake a

private sector study of factors that cause fraudulent financial reporting?

(a) Lloyd's Organisation

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

Correct Answer Committee of Sponsoring Organisations

Answer Committee of Sponsoring Organisations (COSO) formed an independent national
Explanation commission to undertake a private sector study of factors that cause fraudulent
financial reporting in 1985.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question37 Which risk identification technique is a diagrammatic representation of all the events
which may give rise to some major event.

(a) Hazard and Operability (HAZOP) study

(b) Event analysis
(c) Fault Tree
(d) Flow charts
(e) Hazard Indices

Correct Answer Fault Tree

Answer The fault tree is a diagrammatic representation of all the events which may give rise to
Explanation some major event. It shows how individual events can combine together to produce a
dangerous situation to take care of.

Question38 Which of these fall under the scope of duties of the risk manager?
1. To use Risk Financing techniques
2. To use Risk Management techniques
3. Making the risk management program of the company

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

Correct Answer All 1,2 and 3

Answer The risk manager has host of duties to perform. His duties can be grouped as involving
Explanation in the preparing/ implementing the company's risk management programme, use of
techniques relating to risk management and risk financing.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question39 Enterprise Risk Management (ERM) in business is used by companies to ______ .

1. Identify Risks 2. Manage Risks 3. Seize the opportunity

(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 Both 2 and 3

Answer Enterprise Risk Management (ERM) in business includes the methods and processes
Explanation used by organization to manage risk and seize opportunities related to achievement of
their objectives.

Question40 Which type of risk is connected with losses caused by the irregular action of the forces
of the nature or the mistakes and misdeeds of human beings?

(a) Social Risk

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

Correct Answer Static Risk

Answer Static risks are often associated with a commodity the value of which will not be
Explanation affected by an economic change. It even further presumes that the financial state is,
more or less, stable.
Static risks include damage caused by human behavior, such as theft, vandalism,
robbery, arson, and burglary. It also includes damage caused by natural conditions like
rain, thunder, or lightning.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question41 An oil spill is a high-severity, low-frequency event. Which of the following product will
be useful in insuring such risks?

(a) Risk Retention Groups

(b) Credit Securitisation
(c) CAT Bonds
(d) Finite Risk products
(e) Weather Derivatives

Correct Answer Finite Risk products

Answer Finite risk products are similar to traditional insurance but with a longer term say, 10
Explanation yrs. These products shall be useful where the risk sought to be insured against is a high-
severity, low-frequency event, such as oil spill.

Question42 Identify the advantages of the physical inspection / surveys method of risk
identification?
1. Personal visits and interactions with the plant personnel help the risk manager in
developing a rapport with them and thus having a better understanding of the risk
exposure
2. By doing a physical inspection one can have first-hand information from the site and
avoid reliance on reports from others
3. By reviewing the reports, one gets a broad idea of the extent of risks involved

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

Correct Answer Both 1 and 2

Answer The risk identification technique involves different approaches. One of them is physical
Explanation inspection/ surveys. The main advantages of the physical inspection / surveys method
of risk identification: Having first-hand information from the site and personal visits
and interactions with the plant personnel help the risk manager in developing a rapport
with them and thus having a better understanding of the risk exposure.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question43 Identify the CORRECT statement –

1. Risks which are associated with changes in human wants are known as Dynamic Risks
2. Risks in which there is a chance of gain as well a loss are known as Speculative Risks
3. In Pure Risk, there is no chance of a gain but only loss

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

Correct Answer All 1,2 and 3

Answer Risks have been classified under various heads. Accordingly, pure risk is considered in
Explanation the context of the existence of a chance of loss only, but not the chance of a gain at all,
speculative risk is considered in context of the existence of a chance of gain as well a
loss and dynamic risks are associated with changes in human wants and improvement
in machinery or technological innovations.

Question44 Which of type of risk is - 'Potential loss to the persons' ?

(a) Market Risk

(b) Speculative Risk
(c) Pure Risk
(d) Personal Risk
(e) Liability Risk

Correct Answer Personal Risk

Answer Risk is classified under various heads and the personal risk can be defined as potential
Explanation loss to the persons.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question45 Identify the advantages of the 'Study and Enquiry' method of risk identification.
1. Analysis of annual accounts gives a broad indication of the type of activities involved,
amount of assets involved and earnings being made
2. Analysis of Contracts and Agreements entered by the organisation gives a broad idea
of the extent of risks involved
3. Site visits help gives first hand information of the risks involved and avoids reliance
on reports

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

(d) Both 2 and 3

(e) Both 1 and 3

Correct Answer Both 1 and 2

Answer The 'Study and Enquiry' method of risk identification involves study of Annual reports,
Explanation Balance sheets, Agreements, Contracts etc. It does not involve visit to sites.

Question46 _________ risk does not affect a business organisation.

(a) Political
(b) Economic
(c) Financial
(d) Emotional
(e) Social

Correct Answer Emotional

Answer Various risks affecting a business organization includes the risks which could be
Explanation measured on certain established parameters of loss producing events; past, present or
future. These are the risks which could be measured or forecasted with some facts and
assumptions. The emotional risk cannot be measured by any of the techniques involved
in forecasting of the risk.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question47 ________ are the documents that are legally enforceable arrangements that meet the
basic test of offer and acceptance, consideration, legality of purpose and legal capacity
of the parties.
(a) Assurance
(b) Decree
(c) Agreements
(d) Contracts
(e) Commitments

Correct Answer Contracts

Answer As per COCA Organisation (which stands
Explanation for Contracts, Obligations, Commitments and Agreements), CONTRACTS are the
documents that are legally enforceable arrangements that meet the basic test of offer
and acceptance, consideration, legality of purpose and legal capacity of the parties.

Which of these hazards can be termed as a human made hazard?

Question48
1. Hurricane 2. Radioactive pollution 3. Volcano
(a)
Only 1
(b)
Only 2
(c)
Only 3
(d)
Both 1 and 2
(e)
All 1,2 and 3

Correct Answer Only 2

Answer Generally perils are classified into three groups as natural perils, human perils &
Explanation economic perils. Natural perils are called Act of God perils (perils involving no human
intervention). Economic perils are associated with large group of people. Human perils
relates to actions of individuals or small group of individuals. Radioactive pollution is
caused due to issues with handling of nuclear material etc. by humans.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Question49 Mr. Madan manufactured goods which cost Rs. 10000 and sold these goods to Mr.
Suresh for Rs. 13000. Unfortunately, all these goods were destroyed in a fire before
they could be delivered to Mr. Suresh. What is the amount of loss for Mr. Madan?
(a) Rs. 10000
(b) Rs. 13000
(c) Rs. 3000
(d) Rs. 23000
(e) No Loss

Correct Answer Rs. 13000

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.

Question50 A certain risk has a high probability of occurrence and it also involves a high cost of
damage. In such a scenario, what should be the ideal course of action?
1. Reduce the risk 2. Shift the risk 3. Avoid the risk
(a) Only 1
(b) Only 2
(c) Only 3
(d) Both 1 and 3
(e) All 1,2 and 3

Correct Answer All 1,2 and 3

Answer If a risk has a high probability of occurrence and involves a high cost of damage, the
Explanation ideal course of action would be to Reduce, Avoid and Shift the risk. This phenomenon is
called ‘Risk Mapping’.
 IC 86 – RISK MANAGEMENT
PRACTICE TEST . 3

Practice Question Banks also available for :

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IC 46 – General Insurance Accounts
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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 . 3