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ARM 400: Risk in an Evolving World Exam Prep Guide with Questions and Answers ( 2026/2027 Update)
ARM 400: Risk in an Evolving World Exam
Prep Guide with Questions and
Answers (
2026/2027 Update)
Q: tolerable uncertainty components
Answer:
reduce downside risk, earnings stability, anticipate and recognize emerging risks, business
continuity
Q: continuity of operations
Answer:
essential goal for all public entities
Q: holistic risk management goals
Answer:
tolerable uncertainty, profitability and growth, legal and regulatory compliance, social
responsibility, reduced cost of risk, reduced deterrent effects of hazard risks
Q: reduced deterrent effects of hazard risks
Answer:
-alleviates management's fears about potential losses
-increases profit potential by greater participation in investment or production activities
-makes org a safer investment and more attractive
Q: basic risk measures
Answer:
exposure, volatility, likelihood, consequences, time horizon, correlation
Q: exposure
Answer:
any conditions that presents a possibility of gain or loss, whether or not an loss occurs
Q: volatility
Answer:
frequent fluctuations, such as in the price of an asset
Q: likelihood
Answer:
a qualitative estimate of the certainty with which the outcome of a specific event can be
predicted
Q: consequences
Answer:
the effects, positive or negative, of an occurrence; big relationship with likelihood
Q: time horizon
Answer:
estimated duration
Q: correlation
Answer:
relationship between variables
Q: risk classifications
Answer:
pure/speculative, subjective/objective, diversifiable/nondiversifiable, quadrants of risk
Q: pure risk
Answer:
a chance of loss or no lose, but no chance of gain; building fire
Q: speculative risk
Answer:
involves a chance of gain; highly affected price risk and credit risk
Q: subjective risk
Answer:
the perceived amount of risk based on an individual's or org's opinion; may be quite different
from risk; can exist even where objective risk does not
Q: objective risk
Answer:
measurable variation in uncertain outcomes based on facts and data
Q: ways subjective and objective risk can differ
Answer:
-familiarity and control: cars are ly more dangerous that planes
-consequences over likelihood
-risk awareness
Q: diversifiable risk
Answer:
-risk that affects only some individuals, businesses, or small groups
-can be managed through diversification
-fire
-not correlated
Q: nondiversifiable risk
Answer:
-inflation, unemployment, and natural disasters
-can't diversify
-highly correlated
Q: systemic risks
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