Residual Risk – Knowsia

CSME – Nov 2023 – L2 – Q3 – Risk Management and Corporate Strategy

Clarify key concepts in risk management for an investor considering a new business venture.

Question

Professor Akinlabi has been teaching physics at a frontline public university in Nigeria for 30 years. He made quite some money from research grants and has over the years saved about 75 million naira, which he has been keeping in a fixed deposit facility. He complained to his friend, Dr. Albert, who is a professional accountant and expert in risk management, about the low interest rate on fixed deposits and how the high inflation rate in the country is fast eroding the real value of his savings. He is thinking of investing his savings in a poultry farm, but he is quite averse to risks.

Having tried to get some information on the diverse dimensions and dynamics of risks involved in business, he asked Dr. Albert to offer some clarifications. As Dr. Albert, you are required to offer clarifications on the following:

a. Exposure to risk and the nature of qualitative risks. (5 Marks)

b. Residual risk. (3 Marks)

c. The dynamic nature of risk assessment. (7 Marks)

d. Risk-based approach to business. (5 Marks)

Answer

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Tags: Dynamic risk assessment, Qualitative risks, Residual Risk, Risk Exposure, Risk-Based Approach
Level: Level 2

Topic: Risk Management and Corporate Strategy

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

Question

The finance director of Basket Company is preparing a proposal to present to the board of directors. He believes that the company is much too cautious in its policy of giving credit to customers. At the moment all customers are given 30 days’ credit. He believes that by increasing its exposure to credit risk, and increasing credit terms to 60 days, the company will achieve an increase in annual sales of up to 20%. He also thinks that some improvements in debt collection procedures will reduce the level of bad debts, although some bad debts cannot be avoided. He thinks that the value of sales where there is a default will fall each year from 2% of sales to 1.8% of sales. He proposes that in order to increase annual sales and profits, the company should be willing to increase its risk appetite and accept the risk of higher bad debts.

Required:

Using this example of managing credit risk, explain and illustrate the meaning of:
i. Exposure to risk
ii. Risk of losses
iii. Residual risk
iv. Risk appetite

Answer

Find Related Questions by Tags, levels, etc.

Tags: Credit Period, Credit risk, Exposure to Risk, Residual Risk, Risk Appetite, Risk of Losses
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: NOV 2015

CSME – Nov 2023 – L2 – Q3 – Risk Management and Corporate Strategy

Clarify key concepts in risk management for an investor considering a new business venture.

Question

a. Exposure to risk and the nature of qualitative risks. (5 Marks)

b. Residual risk. (3 Marks)

c. The dynamic nature of risk assessment. (7 Marks)

d. Risk-based approach to business. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Dynamic risk assessment, Qualitative risks, Residual Risk, Risk Exposure, Risk-Based Approach
Level: Level 2

Topic: Risk Management and Corporate Strategy

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

Question

Required:

Using this example of managing credit risk, explain and illustrate the meaning of:
i. Exposure to risk
ii. Risk of losses
iii. Residual risk
iv. Risk appetite

Answer

Find Related Questions by Tags, levels, etc.

Tags: Credit Period, Credit risk, Exposure to Risk, Residual Risk, Risk Appetite, Risk of Losses
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: NOV 2015

Question Tag: Residual Risk

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CSME – Nov 2023 – L2 – Q3 – Risk Management and Corporate Strategy

Clarify key concepts in risk management for an investor considering a new business venture.

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

CSME – Nov 2023 – L2 – Q3 – Risk Management and Corporate Strategy

Clarify key concepts in risk management for an investor considering a new business venture.

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

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CSME – Nov 2023 – L2 – Q3 – Risk Management and Corporate Strategy

Clarify key concepts in risk management for an investor considering a new business venture.

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CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

You're reporting an error for "CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy"

CSME – Nov 2023 – L2 – Q3 – Risk Management and Corporate Strategy

Clarify key concepts in risk management for an investor considering a new business venture.

You're reporting an error for "CSME – Nov 2023 – L2 – Q3 – Risk Management and Corporate Strategy"

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

You're reporting an error for "CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy"

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