Tag: Risk

Which of the following risks that Alex plc faces should be classified as business risk?

Select ONE answer:

1. Product risk
2. Event risk
3. Process risk
4. Financial risk

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > Business risk arises from the nature of the business, its operations, and the conditions in which it operates; this includes strategy, enterprise, and product risks. Financial risk and operational risk, which includes event and process risks, are separate types of risk.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Alex plc is concerned about the risk management of its information technology and computer systems function.

The IT systems director, Ted, has suggested that the information systems management function could be wholly outsourced to a third-party provider. 

This action would be a form of?

Select ONE answer:

1. Risk reduction
2. Risk transfer
3. Risk avoidance
4. Risk retention

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct == > Alex plc is not retaining the risk by outsourcing (4). The risk still exists so it is not avoided (3), and outsourcing does not necessarily reduce the probability or impact (1). Instead, the risk is transferred (2).
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

In the risk management process, in which order should the following aspects of risk management proceed?

a Risk response and control
b Risk analysis and measurement
c Risk awareness and identification
d Risk monitoring and reporting

Select ONE answer:

1. a, b, d, c
2. c, b, a, d
3. b, c, a, d
4. d, b, a, c

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct == > Following risk awareness and identification (c), the risk manager analyses and measures the risk (b) and assesses how it can be responded to and controlled (a). The risk is then monitored and reported (d).
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Alex Ltd has recently automated production of its famous Staffordshire Oatcakes and this has led to some redundancies amongst employees that are paid on an hourly basis (ie variable labour).

The company borrowed heavily to finance the purchase of the machinery needed.

The effects of these changes on the company’s financial risk are that?

Select ONE answer:

1. Both changes (machinery and borrowing) increase the company’s financial risk
2. Automation increases financial risk, borrowing decreases it
3. Automation decreases financial risk, borrowing increases it
4. Both changes decrease financial risk

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > Both changes (machinery and borrowing) increase Alex Ltd’s liquidity risk, a type of financial risk, as they increase the amounts (fixed overheads and interest) that must be paid however much revenue is achieved. They both mean that Alex Ltd is more exposed if there is a downturn in demand for its products.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

For many years, Alex plc’s main source of revenue was the sale of floppy storage disks for computers.

This source of revenue fell sharply after the introduction of digital hard storage disks for computers.

In relation to the success of hard disk storage, Alex pic was the victim of?

Select ONE answer:

1. Operational risk
2. Financial risk
3. Business risk
4. Market risk

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > The nature of the computer storage business changed through new technology bringing innovations. Alex Ltd’s main business radically fell because of this – it suffered product risk, a form of business risk
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.