Please answer the following True or False questions

1. All of the benefits that are derived from the law of large numbers is captured by insurance companies not by households and businesses that are purchasing insurance.

2.A key component of an effective enterprise risk management system is to establish open lines of communication between managers responsible for monitoring and managing specific risks within a company so that the interaction of these risks can be evaluated.

3.Operational risk is the risk that events limit the ability of the enterprise to operate normally.

5.An example of a qualitive factor that risk analysis should consider is the complexity and connectivity of risks to which a business is exposed.

6.An effective enterprise risk management program will limit a individual or groups ability to take excessive risks with their firms capital.

7.Effective enterprise risk management should integrate the analyses of key risks to reflect their interdependencies.

8.An example of a quantitative factor that risk analysis should consider is the volatility of prices of a key input.

9.A companys stakeholders only include creditors and owners.

10.The main purpose of risk evaluation should be to protect the board of directors from law suits so they do not take this risk into account when making business decisions.

14. Effective enterprise risk management increases the chances that a firm will be able to identify, mitigate, avoid and treat risks that could destroy a business or make the business less competitive.

15.Frequency refers to the intensity or magnitude of a loss.

16.Business risk is the possibility that an enterprise will not be able to compete successfully and deliver its output in a way that creates value for owners.

17.A key component of an effective enterprise risk management system is to establish open lines of communication between managers responsible for monitoring and managing specific risks within a company so that the interaction of these risks can be evaluated.

18.A book publisher that publishes only spy novels would be more diversified than a publisher that publishes many genres.

19.Qualitative risk analysis should not be undertaken by serious risk managers since without precise predictions of loss managers will likely miss important investment opportunities that lead to slow growth of the business.

20.An effective enterprise risk management system makes it unnecessary for managers and employees to communicate about risk since the chief risk officer observes integrated risks and manages the overall risk profile of the firm.

21.A hedge fund has invested all available funds in artwork. Investors are now requesting to redeem their shares. The hedge fund is exposed to a market risk known as liquidity risk.

22.The outcome of the risk evaluation process should be decisions by managers and one of these decisions may be to do nothing since the risk being evaluated is considered to be remote or have insignificant consequences on the overall performance of the business.

23.A company managed by people who are extremely averse to loss does not need an enterprise risk management program.

24.Risk managers can never change the likelihood of an event so they must always focus on minimizing the impact of the event.

25.A book publisher tries to publish 100 titles each year from 100 different authors. The books are evenly split between fiction and non-fiction. This is an example of using diversification to manage business risk.

26.Every business decision involves an element of risk.

27.The management of Starbucks maintains close relationships with coffee farmers in order to assure the risk of non-delivery is remote.

28.Risk analysis involves a detailed consideration of uncertainties, risk sources, consequences, likelihood, events, scenarios, controls and their effectiveness.

29.If managers seek to implement an enterprise risk management system, they will become more effective managers because they will learn about the vulnerabilities of the company they are managing.

30.A restaurant chain is hyper concerned about products in its supply chain that could be contaminated. The company's CEO has hired a team to manage supply chain risk. The purchasing unit is given the objective of minimizing costs. The supply chain managers and purchasing managers have potentially conflicting objectives.

31.Starbucks has recognized that the financial risk of coffee farmers they do business with translates into business risk for Starbucks. Starbucks takes actions to increase the solvency of its coffee suppliers by supplying them with credit at reasonable terms.

32.Buying insurance is the only effective way for managers to reduce the effects of negative events or outcomes.

33.Enterprise risk management is based on placing risks into silos not evaluating the aggregate of risk.

34.Enterprise risk management hinders creativity in a business by giving preference to safe investments.

35.An event can have multiple causes and consequences and can affect multiple objectives of a business.