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PART 3 RISK Flashcards

(61 cards)

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1
Q

Is an uncertain event that may have a positive or negative impact on the business or project or undertaking

A

Risk

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2
Q

High rewards that potentially come up with opportunity and higher risk that have to be borne as a consequence of danger

A

Risk

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3
Q

The lesser the risk in a given investment the lesser the opportunity for gain

A

True

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4
Q

You can also be said that no risk…

A

No reward

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5
Q

We should be totally avoided we should not understand risk in order to manage them effectively

A

False

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6
Q

Is the business function used to plan organize and control all available resources to reach company goals

A

Management

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7
Q

The systematic process of managing an organization’s risk exposure to achieve its objective

A

Risk management

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8
Q

It is a set of coordinated activities to direct and control an organization with regard to risk

A

Risk management

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9
Q

It deals with the identification assessment and various strategies that help mitigate the adverse effects of risk on the organization

A

Risk management

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10
Q

Purpose of risk management

A

To mitigate the loss of property and increase the success chance of the organization

To identify potential events that may affect the entity and manage risk to be within its risk appetite in order to provide reasonable assurance regarding the achievement of entity objective

To achieve maximum sustainable value from all the activities of the organization

Enhances the understanding of the potential upside and downside of the factors that can affect an organization

Increases the probability of success and reduces both the probability of failure and the level of uncertainty associated with achieving the objectives of the organization

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11
Q

Types of risk

A

Systematic risk
Unsystematic risk

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12
Q

What are the systematic risk

A

Market related risk
Macro in nature
External in nature
Uncontrollable by an organization

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13
Q

What are the unsystematic risk

A

Company specific risk
Micro in nature
Internal in nature
Controllable by an organization

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14
Q

Arises due to variability in the interest rate from time to time

The volatility of bond prices that result from changes in interest rate

It particularly affects the debt securities as they carry the fixed rate of interest

A

Interest rate risk

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15
Q

Also known as position risk

Defined as the risk to which a broker dealer is exposed to and arising from securities held by its principal or in its proprietary or dealer account

Associated with consistent fluctuation seen in the trading price of any particular share or securities

A

Market risk

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16
Q

The risk that the value of your money in real terms will be less than the purchasing power of your original investment

A

Purchasing power risk or inflationary risk

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17
Q

Types of purchasing power risk or inflationary risk

A

Demand inflation risk
Cost Inflation risk

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18
Q

Kinds of risk in systematic risk

A

Interest rate risk
Market risk
Purchasing power risk or inflationary risk

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19
Q

Kinds of unsystematic risk

A

Business risk or liquidity risk
Financial risk or credit risk
Operational risk

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20
Q

Types of business risk or liquidity risk

A

Asset liquidity risk
Funding liquidity risk

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21
Q

Means that risk that an entity will be unable to unwind a position in a financial instrument at or a near its market value because of the lack of depth or disruption in the market for the instrument

A

Asset liquidity risk

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22
Q

Means the risk that an entity cannot obtain the necessary funds to meet its obligation as they failed due at normal times and during crisis

A

Funding liquidity risk

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23
Q

Types of financial risk or credit risk

A

Large exposure risk
Settlement risk
Counterparty risk

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24
Q

Reset an investment may not find our ready buyer or that it may have to be disposed at a substantial loss

A

Business risk or liquidity risk

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25
Also known as default risk This refers to the credit worthiness of the issuer and expected ability to pay interest and repay the principal
Financial risk or credit risk
26
Means risk to which a broker dealer is exposed whether by way o Proportional large amount of exposure to particular counterparty Proportionally large exposure to a single issuer or debt Proportionally large exposure to a single equity security or single issuer group
Large exposure risk
27
Exist when counterparty does not deliver a security or its value in cash as per agreement of trade or business
Settlement risk
28
Means the risk of a counterparty defaulting and its financial obligation to a broker dealer
Counterparty risk
29
Exposure associated with commencing and remaining in the business arising separately from exposures covered by other risk requirements It is the risk of loss resulting from the inadequate or field internal process people policies and system
Operational risk
30
Steps in a sound risk management process
Assess Treat Monitor
31
Assess
1. Recognition and identification of risks 2. Evaluating and ranking of risks
32
Treat
3. Responding to significant risks 4. Resourcing controls 5. Reaction planning
33
Monitor
6. Reporting and monitoring risk performance 7. Reviewing the risk management framework
34
Risk assessment phase
Risk identification Risk Analysis Method of risk identification
35
Establishes the exposure of the organization to risk and uncertainty
Risk identification
36
Risk identification requires an intimate knowledge of the following
Organization The market in which it operates The legal social political and cultural environment in which it exist An understanding of strategic and operational objectives
37
Activity assist the effective and efficient operation of the organization by identifying those risk that require attention by management
Risk analysis
38
The result of this risk can be used to produce a risk profile. It provides a tool for prioritizing risk treatment efforts
Risk analysis
39
Methods of risk identification
Strength weaknesses opportunities threats analysis SWOT FLOWCHARTS AND DEPENDENCY ANALYSIS QUESTIONNAIRES AND CHECKLIST WORKSHOPS AND BRAINSTORMING INSPECTIONS AND AUDITS
40
Responding to significant risk
Avoid or accept Transfer Reduce/ control/ mitigation Exploit
41
Types of risk associated with securities
Systematic risk Systematic risk
42
Overall day to day on going risk that can be caused by a combination of factors including the economy interest rates. Uncontrollable by an organization Macro in nature
Systematic risk
43
Risk arises due to increase in prices which result from an excess of demand over supply
Demand inflation risk
44
Arises due to sustained increase in the prices of goods and services
Cost inflation risk
45
Is presented in ISO 31000 as the activity of selecting and implementing appropriate control measures to modify the risk
Risk treatment
46
Includes as its major element risk control or reduction but extends further to for example risk avoidance risk retention risk transfer and risk exploitation
Risk treatment
47
Any system of risk treatment should provide
Efficient and effective internal controls
48
Divest by exiting a market or geographic area or by selling liquidating or spinning of a product group Eliminate at the source by designing and implementing internal preventive processes Accept risk at its present level taking no further action Reprise products or services by including a premium
Avoid or accept
49
Ensure through cost effective contract with independent, financially capable party under a well defined rest strategy Hedge risk by entering into capital markets Share risks or rewards of investing in your markets and products by entering into alliances or joint venture
Transfer
50
Control risk through internal processes or actions that reduces the likelihood of undesirable events occurring to an acceptable level
Reduce control mitigation
51
Expand business portfolio by investing in new industries and geographic areas Redesign the company's business model Reorganized processes through restructuring vertical integration outsourcing and reengineering
Exploit
52
Monitoring and review ensures that the organization monitors risk performance and learns from experience
Risk monitoring phase
53
Monitoring and review as the final step involves understanding the impact of the control mechanism developed on the hazard and there is it possess
Risk monitoring phase
54
Methods of risk identification
Swot analysis Flowcharts and dependency analysis Questionnaires and checklist Workshops and brainstorming Inspections and audits
55
Strengths weaknesses opportunities threats
Swot analysis
56
Analysis of processes and operations within the organization to identify critical components that are key to success
Flowcharts and dependency analysis
57
Use of structured questionnaires and checklist to collect information to assist with the recognition of the significant risk
Questionnaires and checklist
58
Collection and sharing of ideas and discussion of the events that could impact the objectives stakeholder expectations or key dependencies
Workshops and brainstorming
59
Physical inspections of premises and activities and audits of compliance with established system and procedures
Inspections and audits
60
Can be used to produce a risk profile. It provides a tool for prioritizing risk treatment efforts.
The result of the risk analysis
61
Establishes the exposure of the organization to risk and uncertainty
Risk identification

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