Risk Management Very Short Answer Type Questions
Question 1.
What is risk? What are types of risk?
Answer:
The quantifiable likelihood of loss or less-than-expected returns. Examples: currency risk, inflation risk, principal risk, country risk, economic risk, mortgage risk, liquidity risk, market risk, opportunity risk, income risk, interest rate risk, prepayment risk, credit risk, unsystematic risk, call risk, business risk, counterparty risk, purchasing-power risk, event risk.
Question 2.
What is internal risk?
Answer:
Internal Risks are those risks which arise from the events taking place within the business enterprise. Such risks arise during the ordinary course of a business. These risks can be forecasted and the probability of their occurrence can be determined.
Question 3.
What is external risk?
Answer:
External risks are those risks which arise due to the events occurring outside the business organisation. Such events are generally beyond the control of an entrepreneur. Hence, the resulting risks cannot be forecasted and the probability of their occurrence cannot be determined with accuracy.
Question 4.
State various sources of risk.
Answer:
The various sources of business risk are as follows:
- Customer risk
- Technical risk
- Delivery risk
Question 5.
What is risk Management?
Answer:
Risk management can be defined as a process used to manage systematically pure risk exposures. It is a procedure to minimize the adverse effect of a possible financial loss by –
- identifying potential sources of loss
- measuring the financial consequences of a loss occurring
- using controls to minimize, actual losses or their financial consequences.
Question 6.
What do you mean by Risk analysis?
Answer:
Risk analysis is the process of defining and analyzing the dangers to individuals, businesses and government agencies posed by potential natural and human-caused adverse events.
Question 7.
What is risk management planning?
Answer:
Risk management planning is the process of developing the risk management plan through the process of identifying risks, assessing risks and developing strategies to manage risks.
Question 8.
What do you mean by Risk control?
Answer:
Risk control is a method by which firms evaluate potential losses and take action to reduce or eliminate such threats. Risk control is a technique that utilizes findings from risk assessments and implementing changes to reduce risk in these areas.
Question 9.
What is transfer of risk?
Answer:
Risk transfer is a risk management and control strategy that involves the contractual shifting of a pure risk from one party to another. One example, is the purchase of an insurance policy, by which a specified risk of loss is passed from the policyholder to the insurer.
Question 10.
What is hedging?
Answer:
Hedging is an investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or a -short sale.
Question 11.
What are Hedging instruments?.
Answer:
A hedging instrument is a designated financial instrument whose fair value or related cash flows should offset changes in the fair value or cash flows of a designated hedged item.
Question 12.
Why do foreign exchange rates fluctuate?
Answer:
The foreign exchange rate fluctuates because of the changes in the demand and supply position of foreign currency in the world market.