Tag: Risk

Alex Ltd is a textiles company that developed a new product for use in the sporting market.

Tests on the product proved successful although in extreme conditions the product was shown to be very perishable and dissolved into dust.

After much deliberation, Alex Ltd decided not to launch the product.

In response to the risks highlighted in the product tests, this decision is an example of managing risk through?

Select ONE answer:

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

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 == > Risk reduction (2) would imply taking action to prevent any chance of the product perishing,(4) would imply doing nothing and proceeding to launch the product; and risk transfer (3) might imply taking out liability insurance or selling the product since there is no liability in the event of a perishable event. By not going ahead the company is simply avoiding the risk (1).
2. Not correct
3. Not correct
4. Not correct

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The following statements have been made in relation to risk and uncertainty:

Statement 1 – Risk is the variation in an outcome

Statement 2 – Uncertainty denotes the inability to predict an outcome

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 3

1. Not correct
2. Not correct
3. Correct == > Risk is the variation in an outcome while uncertainty denotes the inability to predict an outcome (due to a lack of information).
4. Not correct

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

A highly-geared company’s financial risk is most likely to increase when it increases its?

Select ONE answer:

1. Operations
2. Geographical reach
3. Borrowings
4. Share capital

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 == > In a highly-geared company, the higher the proportion of borrowings the greater the financial risk. If business activity falls, the company may not be able to meet its interest payments.
4. Not correct

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

In terms of financial risk, credit risk is?

Select ONE answer:

1. Economic loss suffered due to the default of a customer
2. Risk of choosing the wrong strategy
3. Risk that customers do not buy the company’s products in the expected quantities
4. Exposure to potential loss that would result from changes in market prices or rates

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 == > (2) is strategy risk, (3) is product risk and (4) is market risk
2. Not correct
3. Not correct
4. Not correct

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