Tag: Risk

Which of the following is the best definition of the risk concept of ‘exposure’?

Select ONE answer:

1. How the factor to which a company is exposed is likely to alter
2. The amount of the loss if the undesired outcome occurs
3. The measure of the way in which a business is faced by risks
4. The likelihood that the undesirable outcome occurs

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 == > Risk exposure is simply the measure of the way a business is faced by risks, whether financial, business, event etc.
4. Not correct

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A particular project called the Staffie will yield either a profit of £100,000 or a loss of £50,000.

The profit will arise with a probability of 0.8 and the loss will arise with a probability of 0.2.

The project contains?

Select ONE answer:

1. Uncertainty only
2. Risk only
3. Both uncertainty and risk
4. Neither risk nor uncertainty

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. Notcorrect
2. Correct == > All the outcomes and the probability of them occurring are known. As a result, there is no uncertainty, only risk.
3. Not correct
4. Not correct

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

Jonny and Paul is a small firm providing advice on all aspects of personal finance.

Their industry is heavily regulated so, being a small firm, the costs of regulation can be a very heavy burden.

A newspaper article predicts that a further area of the firm’s current business, private medical insurance, may be subjected to brand new regulatory requirements from next year.

This possibility is an example of?

Select ONE answer:

1. Level of exposure and probability of occurrence
2. Potential loss and probability of occurrence
3. Potential loss and level of volatility
4. Level of exposure and level of volatility

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 == > This is clearly a regulatory (or legal) risk, which is a form of event risk.
4. Not correct

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

Lucy is a risk manager working for Alex Ltd.

At the present time Lucy is investigating the potential gross risk arising from a recent decision to incorporate lower quality materials into the production process for one of the company’s key products, the Staffordshire.

In assessing potential gross risk, Lucy needs to take account of one of the following?

Select ONE answer:

1. Level of exposure and probability of occurrence
2. Potential loss and probability of occurrence
3. Potential loss and level of volatility
4. Level of exposure and level of volatility

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. Notcorrect
2. Correct == > Gross risk is a function of the loss or impact and its probability, before any control measures are implemented.
3. Not correct
4. Not correct

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

The following statements have been made about risk attitudes.

Statement 1 – A risk-seeking attitude means that an investment should not be undertaken if there
is an alternative investment offering a higher risk

Statement 2 – A risk neutral attitude means an investment should not be undertaken if there is an
alternative investment offering a lower return

Are the statements true or false?

Select ONE answer:

1. Statement 1 = True / Statement 2 = False
2. Statement 1 = False / Statement 2 = True
3. Statement 1 = True / Statement 2 = True
4. Statement 1 = False / Statement 2 = False

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 == > If there are two investments offering different risks, a risk-seeking investor will always prefer the one with the higher risk. If there are two investments offering different returns, a risk neutral investor will always prefer the one with the higher return, not a lower return, regardless of the risk.
2. Not correct
3. Not correct
4. Not correct

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