Chapter 1

Question 1

Credit, Market and Liquidity Risks

Answer 1

• Growth in income for investors and entrepreneurs through investments put to most productive use
• Borrowing by home owners and corporates financed by savings such as investments

Question 2

Investment Risk

Answer 2

The combination of risks involved in providing the right level of return for investors

Question 3

Operational Risk

Answer 3

Risk Associated with the people, Processes, Systems and external events that the firm needs to manage in running its business

There are four key drivers that are collectively referred to as operational risk

Question 4

Pestle analysis

Answer 4

Analysis of macro environment and is done by brainstorm with internal/ external experts

Question 5

Enterprise Risk

Answer 5

Comprehensive assessment and management of all risks faced by a firm

Question 6

External Sources of Risk

Answer 6

Global Economy
Politics
Competition
Environment
Cyber Risk

Question 7

Political effect on risk

Answer 7

Change in the markets where a firm invests
Changes in demand for certain products
Changes in the legislative environment

Question 8

External Stakeholder

Answer 8

Parent company
Institutional Investors
Large Companies

Question 9

Strategic Risk

Answer 9

Risk that arises from changes in business environment or adverse business decision

Question 10

Financial Risks

Answer 10

Credit, Market and Liquidity

Question 11

Economic Risk

Question 12

Political Risk

Question 13

Environmental risks emanate from:

Answer 13

climate change issues (such as firms’ vulnerability due to climate change), and

Issues around the depletion of natural resources (such as water scarcity, land use, and raw-material
sourcing).

Question 14

Social risks emanate from:

Answer 14

• human capital issues (such as labour management and health and safety)
• product liability issues (such as product safety, quality, privacy and data safety issues), and
• stakeholder opposition (such as local health and demographic risks, and controversial sourcing of
  materials).

Question 15

Governance risks emanate from:

Answer 15

• corporate governance issues (such as management structure and board-employee relations and
  compensation), and
• corporate behaviour issues (such as business ethics and anti-competitive practices, tax, transparency
  and corruption, and financial system instability).

Question 16

Healthy risk culture

Answer 16

the attitude to risk and ethics of the board and senior team
* the effectiveness with which these attitudes and ethics are communicated throughout the firm
* the degree to which risk is formally considered during decision-making, and
* the extent to which incentive schemes reinforce good risk management

Question 17

Risk Appetite

Answer 17

Risk appetite (or risk tolerance) is the type and amount of risk that a firm is willing to accept in the pursuit
of its business objectives

Question 18

Residual (Net) Risk

Answer 18

is the firms exposure after having taken mitigating controls into account

Question 19

Risk Profile

Answer 19

The type and intensity of the risks to which it is exposed. It consists of the nature of the threats faced by an organization, The likelihood of adverse effects occurring and the level of disruption and costs associated with each type of risk

Question 20

Risk Mitigation

Answer 20

ensuring that appropriate insurance policies are in place
* upgrading processes and IT systems to control an operational risk better
* hedging against a market risk, and
* holding collateral against a credit risk when lending to a third party: an asset belonging to that party
is held by the lender so that if the borrower cannot repay the loan, the lender can liquidate the asset.
This asset is known as collateral.