Chp 1: Risk and risk exposure

Question 1

Define Fundamental, Particular, Speculative and Pure risks

Answer 1

Fundamental - Those affecting a broad group of people or society but are outside the control of any one individual
Particular - Those which an individual may have some measure of control over
Speculative - Risks which may have good or bad outcomes
Pure - Those risks with only harmful outcomes

Question 2

Define strategic risks and operational risks and provide four differences between them

Answer 2

Strategic - relate to the organisation’s longer termplace in the outside environment
Operational - what could go wrong on a day to day basis

1. Scope of impact
2. Source of risk
3. Duration of impact
4. Scale of financial and resource consequences

Question 3

Define hazard risks

Answer 3

A possible source of danger

Natural - ie. earthquakes, floods, pandemics
Human-caused - accidental (chemical spills) or otherwise (terror attacks)

Question 4

Define Economic Risk

Answer 4

The degree to which the value of a firms future cash flows can be influenced (medium to long term) by foreign exchange movements

Question 5

What is the cash flow ratio?

Answer 5

(net cash flow) / (total debts)

Question 6

How to calculate the sensitivity of a vairable in a project?

Answer 6

Divide the NPV of the porject by the NPV of the specific variable (cost, revenue etc.)

The percentage given is the amount the variable would need to fall or rise to breakeven