Risk governance: Manage the risks Coursera Quiz Answers

All Weeks Risk governance: Manage the risks Coursera Quiz Answers

Risk governance: Manage the risks Week 01 Quiz Answers

Quiz 1 Answers

Q1. Which definition of risk is most consistent with this course, and ISO31000?

• The probability that an actual return on an investment will be lower than the expected return.
• The average squared deviation of each number from its mean.
• The possibility of loss or injury
• The effect of uncertainty on objectives

Q2. An investor is planning for retirement 30 years from now. She knows that investing in shares produces returns that are highly variable from one year to the next, whereas investing in cash produces very stable returns. She also knows that if she invests in cash she will never accumulate sufficient wealth for her needs in retirement. With shares, she has a good chance of achieving her retirement objectives. Which asset is the most risky in this context?

• Shares
• Impossible to predict.
• Cash

Q3. The goal of risk management is:

Choose all that apply.

• Reduce uncertainty
• Creation and protection of value
• Improve performance
• Encourage innovation

Q4. The fact that people are extremely fearful of terrorist attacks, especially when one has just been reported extensively in the media, can be explained by:

• The availability bias
• Overconfidence
• Groupthink
• None of the above

Q5. A staff member in an agricultural company is concerned about the trend of drying conditions and the effect this might have on the company if steps are not taken to adapt. His manager will not listen to his arguments, claiming that global warming is a hoax. This is an example of:

• Confirmation bias
• None of the above
• Groupthink
• Availability bias

Q6. Overconfidence is when:

Choose all that apply.

• People know less than they believe they know.
• People are less capable in performing a task than they believe themselves to be.
• A group places the goal of achieving consensus ahead of making effective decisions.
• People believe they can control an outcome when, in reality, luck will play a major role.

Risk governance: Manage the risks Week 02 Quiz Answers

Quiz 1: Foreign exchange risk Answers

Q1. An investigation of external context could include analysis of:

Choose all that apply.

• The economy
• The regulatory environment
• Demographic trends
• Strategy

Q2. The following are examples of risk criteria:

Choose all that apply.

• Returns on an investment cannot be negative more often than one year in five.
• The number of system outages this quarter cannot exceed 2.
• There can be no deaths on the building site.
• Earnings before interest and tax this year must be greater than $1m

Q3. An Indian steel mill imports steaming coal from Australia and the price of coal is expressed in US dollars. This is an example of:

• A translation exposure
• A transaction exposure
• A competitive exposure
• None of the above

Q4. Linked below for download is the spreadsheet including historical data for the Australian dollar in terms of Euro, as presented in Week 3 video. Go to the Tab ‘Historical’ in the spreadsheet to view the data. Answer the following question after reviewing the data.

• -7.72% to 0.25%
• -4.43% to 4.05%
• -1.79% to 2.09%
• -1.72% to 1.85%

Q5. Using the normal distribution, and assuming an average of 0.06% and standard deviation of 2.67%, calculate the range, centred at the average, that captures 50% of all returns. Which statement(s) are true?

Choose all that apply.

• The range is from -1.72% to 1.85%, a difference of 3.57%
• The range should be similar to the interquartile range from a sample with the same average and standard deviation.
• The range should be narrower than the range that includes 90% of all returns.
• Approximately 50% of the returns from the sample should be outside of the range.

Q6. Which statement(s) are correct regarding log returns?

Choose all that apply.

• They address the problem of compounding (interest on interest).
• Are calculated using natural logs i.e. ln(Pt/Pt-1)
• They should be used when you’re analysing returns over multiple periods.
• Should be avoided due to complexity.

Quiz 2: Risk governance: Manage the risks

Q1. Use the data in the spreadsheet Practice Data, linked below to answer this question.

• Equal to the expected value
• A measure of central tendency in the sample of returns
• Equal to 0.20%
• Equal to 0.19%

Q2. Use the data in the spreadsheet Practice Data, linked below to answer this question.

Choose all that apply.

• Equal to the interquartile range
• Equal to 1.75%
• A measure of how variable the returns are
• Equal to 2.72%

Q3. Use the data in the spreadsheet Practice Data, linked below to answer this question.

• Range is from -4.28% to 4.68%, a difference of 8.96%
• Range is from -3.72% to 4.61%, a difference of 8.33%
• Equal to the interquartile range
• Range is from -1.62% to 2.01%, a difference of 3.63%

Q4. Use the data in the spreadsheet Practice Data, linked below to answer this question.

Choose all that apply.

• The most common monthly return was in the range 0-1%
• In thirteen months the returns were between -3% and -2%
• From 2010-18, there was only one month where returns were lower than -8%
• In four months the returns were lower than -3%

Q5. In January 2010 1 Euro was equivalent to INR65. By the end of 2018, 1 Euro was equivalent to INR80. Which statement is true?

Choose all that apply.

• Over this period, it has become more expensive for Indian firms to import goods from Europe.
• Over this period, exchange rate moves have made Indian products cheaper from a European perspective.
• Over this period, it has become less expensive for Indian firms to import goods from Europe.
• Over this period, exchange rate moves have made Indian products more expensive from a European perspective.

Q6. Today one Euro is equivalent to INR80. Last month one Euro was equivalent to INR76. Calculate the log return for Euro (in terms of INR), expressing it as a percentage to two decimal places.

• 5.13%
• 5.35%
• 5.26%
• 5.19%

Q7. Open the spreadsheet Larry’s Lesson 3.2, linked below, and go to the ‘Simulated Prices’ sheet. In cell B8 you can find…

• A ‘randomly’ generated return, assuming that the average return is zero and the standard deviation of returns is 2.7%
• Our simulated return for month one of path 1.
• A ‘randomly’ generated return, created under the assumption of lognormality.
• A ‘randomly’ generated return, created under the assumption of normality.

Q8. Open the spreadsheet Larry’s Lesson 3.2, linked below, and go to the sheet ‘Graph Sim EUR per AUD’. Which of the following statements are true?

• If I go back to the ‘Simulated Prices’ sheet and change the assumed standard deviation to -2.0% (cell B2) then the range of exchange rate paths will shift down.
• If I go back to the ‘Simulated Prices’ sheet and change the assumed standard deviation to 5.0% (cell B3) then the range of exchange rate paths will be even wider.
• There is a tendency for most paths to be at either end of the range of extreme values after 12 months.
• The range of simulated exchange rates gets wider as time progresses.

Q9. Open the spreadsheet Larry’s Lesson 3.2 , linked below,and check, under ‘Simulated Prices’, that the assumed average return is set to zero and the assumed standard deviation is set to 2.7%. Now go to ‘Earnings I’ sheet. The probability of 12 month earnings being negative is…

• Calculated from the simulated earning paths, and with the help of a simple ‘if/then’ statement.
• In the order of 12%, depending on the sample.
• Is always greater than the probability of a cashflow catastrophe as defined by Larry.
• In the order of 24%, depending on the sample.

Q10. Suppose that today 1 Euro is equal to INR80. You simulate a return for the month of 5%. What is your simulated exchange rate one month from now?

• 1 Euro = INR 84.00
• 1 Euro = INR 84.40
• 1 Euro = INR 84.10
• 1 Euro = INR 84.20

Risk governance: Manage the risks Week 03 Quiz Answers

Quiz 1: Governance overview Answers

Q1. A manager is distracted by his new girlfriend who often calls him during work hours. This is an example of:

Select only one response.

• Shirking
• Moral hazard
• Managerial entrenchment
• Nepotism

Q2. A manager buys some expensive artwork for his office and charges it to the company he works for. This is an example of:

Select only one response.

• Short-termism
• Cronyism
• Empire building
• A perquisite (perk)

Q3. An independent director:

Choose all that apply.

• Is not an executive of the company
• Has no affiliation or relationship with the company
• Could be an employee of another company that is a major customer
• Could be a recently retired executive of the company

Q4. Which of the following statements is true?

Select only one response.

• The United States has a two-tiered board model.
• Most countries have separation of Chairman/CEO
• A board represents the interests of the executive
• Germany has a unitary board model

Q5. If shareholders are dissatisfied with management they can typically exert influence by:

Choose all that apply.

• Removing a director
• Calling a meeting of shareholders
• Asking questions at a meeting
• Appointing a proxy to vote on their behalf at a meeting
• Calling a vote on an issue

Q6. In 2018, hedge fund Elliott Management lost a proxy fight to oppose the combination of the Samsung units, solidifying the founding family’s grip over the group.

This is an example of:

Select only one response.

• Principle-based shareholder activism
• Gaming behaviour
• Hostile takeover
• Financially motivated shareholder activism

Quiz 2: Risk governance: Manage the risks

Q1. A manager employed by ABC also owns a cleaning company called Cleanfast. He awards ABC’s cleaning contract to Cleanfast. This is an example of:

• Self-dealing
• Expropriation
• Empire building
• Gaming

Q2. A manager decides to expand the business into a highly specialised field, that he happens to be expert in. The benefits to shareholders seem marginal. This is an example of:

Choose all that apply.

• Gaming
• Self-dealing
• Entrenchment
• Empire building

Q3. Senior executives may be given restricted shares. Which statement is true?

• The shares are restricted in the sense that they can never be sold.
• The primary goal is to attract the best people for the job.
• The shares may be sold immediately.
• The primary goal is to motivate executives to act in the interests of shareholders.

Q4. Which of the following could be the aim of a campaign by shareholder activists?

Choose all that apply.

• Prevent a merger
• Highlight ‘dodgy’ accounting practices
• Board composition
• Reduce carbon emissions

Q5. Shareholder activists use a number of tactics including:

Choose all that apply.

• Buying shares
• Publishing reports
• Short-selling
• Private meetings with management
• Putting forward a shareholder resolution at a meeting of shareholders

Q6. Some managers are loathe to question company practices for fear of damaging their popularity with peers or bosses. This is an example of:

• Managerial expropriation
• Shirking responsibilities to shareholders
• Perquisite taking
• Nepotism

Q7. The threat of takeover is a mechanism that tends to favour the rights of

• Regulators
• Managers
• Shareholders
• Employees

Q8. Empire building is…

Choose all that apply.

• Motivated by the desire of the manager to earn more
• Generally a good thing for shareholders but bad for managers
• For the primary benefit of management (i.e. increasing salary and reputation)
• The practice of increasing the size of the business or sphere of authority

Q9. Which is true of independent directors?

• They are members of the executive team and protect the interests of employees.
• They cannot hold more than one directorship.
• They are expected to oversee and challenge the executive
• Ideally they are recently retired executives of the firm.

Q10. Which of the following would qualify as ‘cronyism’?

• Appointing someone to a position of authority who has paid a bribe
• Appointing the best qualified person to a position of authority
• Appointing family members to positions of authority
• Appointing old colleagues from university to positions of authority

Q11. A large listed company is underperforming. The CEO is retiring and must be replaced either with an internal or external candidate. Which of the following is true?

Choose all that apply.

• An external candidate is more likely to be appointed if the board is dominated by independent directors.
• If an external candidate is appointed there is more likely to be a favourable announcement effect in the share price.
• An external candidate is less likely to be appointed if there is a large blockholder.
• An internal candidate is more likely to be appointed if there are few independent directors.

Q12. Which statement is true regarding an audit committee?

Choose all that apply.

• It oversees the quality of processes for producing financial reports
• The Chair is typically an executive
• Committee members have no contact with managers.
• Members are normally drawn from the board itself
• It appoints the (external) auditor

Q13. Which of the following would normally be dealt with in a code of corporate governance?

Choose all that apply.

• Principles for disclosure of information to shareholders
• Safeguards for the integrity of financial statements
• Principles for executive remuneration
• Size and composition of the board
• Role of the board relative to the executive

Risk governance: Manage the risks Week 04 Quiz Answers

Quiz 1 Answers

Q1. Which of the following is NOT one of the five treatment categories?

• Adapt
• Transfer
• Avoid
• Retain

Q2. In risk governance, the role of the board is:

Choose all that apply.

• To manage the organisation’s principal risks
• To provide independent assurance in relation to the risk management framework
• To set risk appetite
• To oversee implementation of the risk management framework

Q3. In the 3 lines of defense methodology, the role of line 2 is:

Choose all that apply.

• Advising line 1 executives in how to improve risk management
• Challenging decisions made by line 1 executives
• Independent reporting of behaviour that does not comply with policy.
• Providing assurance of the effectiveness of the risk management framework

Q4. A favourable/strong risk culture means that…

Choose all that apply.

• Risk-taking is frowned upon.
• All staff will be engaged with risk management.
• Staff are encouraged to identify new and emerging risks.
• Staff are encouraged to comply with risk policy.

Q5. At the ‘Calculative’ stage of risk management maturity, the organisation is likely:

Choose all that apply.

• To be Implementing 3 lines of defence
• To have a shared perception throughout the firm that risk management is an enabler for the business.
• To be recruiting risk management and compliance professionals.
• To be implementing IT systems for tracking risk events.

Risk governance: Manage the risks Week 05 Quiz Answers

Quiz 1: Recall 5

Q1. Which of the following would be a corrective or mitigating control?

• Increasing the amount of equity capital
• Taking out an insurance policy
• Putting a first-aid kit in the office
• Installing bollards to prevent car access on a pedestrian walkway

Q2. Reporting of risk events is a line 1 responsibility, but risk events are often under-reported. What reasons might staff have for failing to report?

• Work pressure
• Doubts that anything will be done to fix the problem
• Fear about adverse impact on rewards/recognition
• Not knowing how to report an event

Q3. Quantitative risk analysis:

• Is used to determine how much capital is needed
• Is used to determine whether the cost of insurance can be justified
• Is used to determine whether expensive risk treatments can be justified
• Is useful for its own sake

Q4. The benefit of Monte Carlo analysis is:

• To create a large data set which is essential for robust analysis
• To visualise risk, thus helping to influence decision-makers appropriately
• Lack of model risk
• Ability to quickly assess risk capital needs

Q5. An unknown unknown is:

• A risk event where both likelihood and impact are not quantifiable based on experience
• A risk type where we have a probability distribution but we don’t know which outcome will occur on a particular day.
• The same as a black swan event
• Something that can be safely ignored

Q6. The main cause of groupthink:

• Is the human desire to avoid conflict
• Optimism
• Availability bias
• Incentives to downplay risk due to capital requirements

Quiz 2: Risk governance: Manage the risks

Q1. For which of the following risk types would subjective risk assessment be needed?

• System outages in professional services
• Accidents on a construction site
• Terrorist attack on firm headquarters
• Customer fulfilment errors for an online retailer

Q2. For which of the following risk types would quantitative assessment be appropriate? Choose all that apply

• New type of cyber-attack
• Mechanical failure on a production line
• Outbreak of pandemic disease
• Credit card fraud for a bank

Q3. A smoke alarm in a warehouse would be an example of:

• A directive control
• A corrective/mitigating control
• A detective control
• A preventative control

Q4. A bank has a credit scoring system for assessing all potential new credit card customers. To apply for a card, the customer must enter information (such as income, assets, credit history), which is used by the bank to determine the credit score. Depending on the score, decisions are made on whether to offer a credit card to the customer, and, if an offer is made, the interest rate that will be charged i.e. higher rates are applied if the risk to the bank is higher. Which type of control is this, from the perspective of the bank? Choose all that apply

• Preventative
• Directive
• Corrective/mitigating

Q5. The purpose of a root cause analysis is:

Choose all that apply

• To better understand the factors that contributed to or caused an event.
• To better understand the impact of an event
• To help identify potential preventative controls
• To help identify potential mitigating controls

Q6. The purpose of the ‘Five Why’s’ methodology is:

Choose all that apply

• To make a proportional investment in addressing all the relevant causes of an incident.
• To understand all the causes of an incident.
• To ensure that the right people can be blamed and shamed.
• To ensure that the organisation learns from risk events.

Q7. Which statements are true regarding reporting of risk events? Choose all that apply

• Reporting is a line one responsibility
• Risk events are often under-reported due to concerns that nothing will be done with the information
• Reporting is a line two responsibility
• Risk events are typically over-reported due to a desire to boost performance measures.

Q8. To assess capital requirements for risk…

Choose all that apply

• We need to understand the potential for low probability but extreme losses that might occur in the future
• Monte Carlo analysis is very useful
• We need to understand expected (typical) losses

Q9. When analysing operational risk, it is usual to find that:

Choose all that apply

• There is a small probability of extreme loss
• There is a high probability of small losses
• There is a high probability of extreme loss
• The distribution of losses is skewed

Q10. This question is based on the graphic provided below.

In this graphic, risk capital is represented by which one of the following options:

• The distance from 0 to B
• The distance from A to B
• The yellow shaded area from B and higher
• The distance from 0 to A

Risk governance: Manage the risks Week 06 Quiz Answers

Quiz 1: Recall 6

Q1. Moral disengagement occurs:

• In people who are basically immoral
• In people who never experience guilt/shame
• When people temporarily suspend guilt/shame using various cognitive mechanisms
• When people use various cognitive mechanisms to hide their actions

Q2. Which of the following is NOT an example of a moral disengagement process?

• Diffusion of responsibility
• Euphemistic labeling
• Moral justification
• Distortion of blame

Q3. An ethical organisational culture is primarily about

• Perceptions of behavioural norms
• Statements by senior leaders
• Incentives that encourage good behaviour
• Having structures like a code of conduct and whistleblower program

Q4. Which statements are true about cash bonuses paid to sales staff, based on volumes, over and above base salary? Choose all that apply

• They might attract staff who are motivated by money.
• They signal to staff that the organisation values high sales.
• They might encourage some staff to violate policies in order to increase their bonuses.
• They are fine so long as a system exists for ensuring that staff comply with all policies relating to misconduct.

Q5. The Giving Voice to Values approach has several components, including:

Choose all that apply.

• Understanding the stakeholders and their various interests
• Preparing a set of arguments against a practice that concerns you
• Anticipating possible counter-arguments and planning a response
• Considering possible next steps

Q6. A sensible first step in response to an issue that concerns you would be:

Choose all that apply.

• Ask lots of questions about the issue and gather information
• Write a letter to the media
• Tender your resignation
• Find allies who might share your concerns

Quiz 2: Risk governance: Manage the risks

Q1. In explaining workplace misconduct, we sometimes talk about bad apples, bad barrels and bad orchards. In this metaphor, a bad barrel refers to:

• An industry that encourages misconduct
• A workplace environment that might enable misconduct
• An individual that engages in misconduct for reasons that are unique to that individual

Q2. Some workplace misconduct has a short-term benefit for the organisation. Examples would be:

• Absenteeism
• Harrassment of co-workers
• Deceiving customers about the benefits of a product.
• Bribery

Q3. The approach to ethics in this course (based on ‘Giving Voice to Values’) is different from traditional ethics education/training in that:

• We identify possible counter-arguments and plan a response
• The focus is on doing something practical about a dilemma
• We find a way to act on our values
• The focus is on identifying what is the right course of action

Q4. Machiavellianism is an antisocial personality trait whereby the individual

• Seeks attention and admiration from those around them
• Is impulsive, callous and aggressive
• Is manipulative, strategic and inclined to exploit others for personal gain

Q5. Moral disengagement is

• When people are basically immoral
• When moral people display blindness to a moral issue in a particular situation
• A set of 5 cognitive processes that allow people to behave badly without the usual guilt/shame
• When people refuse to consider an ethical issue even when its brought to their attention

Q6. Someone says: ‘It’s okay to treat badly somebody who behaves like scum’. This is an example of:

• Distortion of consequences
• Advantageous comparison
• Displacement of responsibility
• Dehumanisation

Q7. Workplace culture matters because

• Humans learn how to behave by watching those around them
• People are powerless to make their own choices
• People are concerned about how they may be perceived by others
• What’s enacted matter more than what is espoused

Q8. What are some organisational structures that might encourage ethical behaviour, if supported by an ethical culture?

• Code of conduct
• Training programs
• Whistle-blower program
• Policies for disciplining wrong-doing

Q9. Which statement is true about incentives and culture?

• Culture, but not incentives, influences behaviour
• Culture influences how the incentive program is implemented.
• Incentive programs reflect the culture of the organisation
• Culture and incentives are unrelated, but both influence behaviour.

Q10. Some of the risks of whistle-blowing are:

• Losing your job
• Bullying and isolation in the workplace
• Being defamed or discredited
• Negative health effects

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