#1
Which of the following is a risk management strategy aimed at reducing the impact of a potential loss?
Risk avoidance
Risk transfer
Risk retention
Risk diversification
#2
What is the primary goal of financial risk management?
Maximizing profits
Minimizing losses
Achieving market dominance
Increasing shareholder dividends
#3
Which of the following is NOT a type of financial risk?
Credit risk
Liquidity risk
Strategic risk
Market risk
#4
Which of the following is a strategy for managing currency risk?
Hedging
Speculation
Margin trading
Arbitrage
#5
What is the primary objective of portfolio diversification?
To maximize returns
To minimize transaction costs
To reduce risk
To concentrate investments in a single asset
#6
Which of the following is a characteristic of unsystematic risk?
It affects the entire market
It can be diversified away
It is also known as market risk
It is measured by beta
#7
Which of the following is NOT a commonly used financial derivative for risk management?
#8
What does Value at Risk (VaR) measure in risk management?
The maximum potential loss within a given confidence level
The average potential loss over time
The volatility of a financial asset
The probability of a gain in a portfolio
#9
Which of the following is a characteristic of systematic risk?
It can be eliminated through diversification
It is also known as unsystematic risk
It affects the entire market
It arises from company-specific factors
#10
What is the formula for calculating the Sharpe ratio?
Risk-free rate of return / Portfolio return
(Portfolio return - Risk-free rate of return) / Portfolio standard deviation
Portfolio return * Portfolio standard deviation
Portfolio return - Risk-free rate of return
#11
In financial decision making, what does the term 'opportunity cost' refer to?
The cost of an investment
The cost of obtaining funds for investment
The cost of forgoing the next best alternative
The cost of risk associated with an investment
#12
What is the purpose of stress testing in risk management?
To measure the impact of extreme events on a portfolio
To assess the liquidity of an investment
To calculate the expected return of an asset
To analyze the historical performance of a security
#13
Which of the following is a limitation of using the Capital Asset Pricing Model (CAPM) in financial decision making?
It assumes a linear relationship between risk and return
It ignores diversifiable risk
It is not suitable for evaluating portfolio performance
It cannot account for changes in interest rates
#14
Which of the following is a characteristic of a risk-neutral investor?
Prefers high-risk investments with potentially high returns
Ignores the risk associated with investments
Seeks investments with guaranteed returns
Willing to accept lower returns for less risk
#15
What is the role of a Chief Risk Officer (CRO) in a company?
To manage investment portfolios
To oversee compliance with regulations
To develop marketing strategies
To supervise human resources operations