Enterprise Risk Management (ERM) Practice Questions - Enterprise Risk Management (ERM) - Actuaries Institute Fellowship Program Exam - Enterprise Risk Management (ERM) Practice Questions - Enterprise Risk Management (ERM) - Actuaries Institute Fellowship Program Exam

Question 1

In enterprise risk management, which of the following best describes the primary function of the 'Second Line of Defence' under the Three Lines of Defence governance model?

Providing independent oversight, establishing risk management frameworks, and monitoring adherence to risk limits Direct day-to-day operational ownership and management of business risks and controls Delivering objective, independent assurance on the effectiveness of governance and internal controls directly to the Board Audit Committee Setting the overall commercial strategy and executing customer transactions within business units

Correct Answer:

Providing independent oversight, establishing risk management frameworks, and monitoring adherence to risk limits

Question 2

Under APRA Prudential Standard CPS 220 (Risk Management), what is the primary statutory responsibility of the Board of an APRA-regulated institution regarding risk appetite?

Establishing and maintaining an approved Risk Appetite Statement (RAS) that articulates the degree of risk the institution is willing to accept Delegating full authority for risk limit setting and policy exceptions to the Chief Risk Officer without Board oversight Relying exclusively on external statutory auditors to define acceptable financial loss thresholds Formulating day-to-day tactical underwriting guidelines for individual retail branches

Correct Answer:

Establishing and maintaining an approved Risk Appetite Statement (RAS) that articulates the degree of risk the institution is willing to accept

Question 3

Which of the following mathematical properties is REQUIRED for a risk measure ρ(X) to be classified as a 'coherent risk measure' under the Artzner et al. (1999) axioms?

Subadditivity: ρ(X + Y) ≤ ρ(X) + ρ(Y) Strict superadditivity: ρ(X + Y) > ρ(X) + ρ(Y) Quadratic scaling: ρ(λX) = λ² ρ(X) for all λ > 0 Invariance under non-linear monotone transformations: ρ(g(X)) = g(ρ(X))

Correct Answer:

Subadditivity: ρ(X + Y) ≤ ρ(X) + ρ(Y)

Question 4

Why is standard Value at Risk (VaR) at confidence level α NOT a coherent risk measure in the general case?

It fails the subadditivity axiom for non-elliptical loss distributions with heavy tails It violates positive homogeneity when portfolio sizes are scaled by a constant factor It fails monotonicity when losses are strictly non-negative It cannot be computed for normally distributed financial asset returns

Correct Answer:

It fails the subadditivity axiom for non-elliptical loss distributions with heavy tails

Question 5

An actuary models portfolio losses using Tail Value at Risk (TVaR), also known as Expected Shortfall (ES), at confidence level α = 99%. By definition, TVaR_0.99(L) represents:

The conditional expected loss given that the loss exceeds the 99th percentile Value at Risk: E[L | L > VaR_0.99(L)] The maximum possible loss that can occur with exactly 1% probability in a one-year time horizon The median loss across the entire probability distribution of asset returns The standard deviation of losses multiplied by the 99th percentile standard normal quantile

Correct Answer:

The conditional expected loss given that the loss exceeds the 99th percentile Value at Risk: E[L | L > VaR_0.99(L)]

Question 1

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Prepare with the Enterprise Risk Management (ERM) Practice Questions - Enterprise Risk Management (ERM) - Actuaries Institute Fellowship Program Exam practice quiz. This question bank includes 100 questions covering risk, capital, management, value, and primary. Use it to review important concepts, identify knowledge gaps, and build confidence for the related exam, course, or assessment.

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Enterprise Risk Management (ERM) Practice Questions - Enterprise Risk Management (ERM) - Actuaries Institute Fellowship Program Exam

This practice set contains 100 questions from the matching question bank and focuses on risk, capital, management, value, and primary. Work through each question carefully, review the provided solutions, and revisit topics that need more study before your next attempt.

This is an independent study resource intended for practice and review; it is not an official examination or an endorsement by any organization named in the title.

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Enterprise Risk Management (ERM) Practice Questions - Enterprise Risk Management (ERM) - Actuaries Institute Fellowship Program Exam

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