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Test: Risk - B Com MCQ


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10 Questions MCQ Test - Test: Risk

Test: Risk for B Com 2024 is part of B Com preparation. The Test: Risk questions and answers have been prepared according to the B Com exam syllabus.The Test: Risk MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Risk below.
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Test: Risk - Question 1
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Which of the following risks refers to the swing in commodity prices affecting a business?

Detailed Solution for Test: Risk - Question 1
Commodity price risk is the risk of a swing in commodity prices affecting a business. When commodity prices go up, companies that sell commodities benefit, but companies that use commodities as inputs may suffer. This risk can also impact companies that have nothing to do with commodities, as consumers tend to rein in spending when commodity prices climb, affecting the whole economy.
Test: Risk - Question 2
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Which risk is associated with the potential negative impact of media stories on a company's business?

Detailed Solution for Test: Risk - Question 2
Headline risk refers to the risk that stories in the media will hurt a company's business. Negative news can lead to a market backlash against a specific company or an entire sector. For example, news of the Fukushima nuclear crisis in 2011 punished stocks with any related business, from uranium miners to U.S. utilities with nuclear power in their grid.
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Test: Risk - Question 3
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What is the risk that a company's business may become obsolete due to competition and advancements in technology?

Detailed Solution for Test: Risk - Question 3
Obsolescence risk refers to the risk that a company's business becomes obsolete as someone finds a way to make a similar product at a cheaper price. With global competition becoming increasingly technology-savvy and the knowledge gap shrinking, the risk of obsolescence is likely to increase over time.
Test: Risk - Question 4
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What is the risk that a business may be given a number to achieve or maintain, affecting its credit rating and market perception?
Detailed Solution for Test: Risk - Question 4
Rating risk occurs when a business is given a number to either achieve or maintain, which directly affects its credit rating. The credit rating, in turn, affects the price a business will pay for financing. Additionally, the analysts' rating on a stock can also have an outsized psychological impact on the market, causing swings larger than justified by events that led to rating adjustments.
Test: Risk - Question 5
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Which risk refers to the possibility of financial fraud or improper financial practices going undetected until it is too late?
Detailed Solution for Test: Risk - Question 5
Detection risk is the risk that auditors, compliance programs, regulators, or other authorities will fail to detect financial fraud or improper financial practices until it is too late. This risk can have severe consequences for a company's reputation and may even lead to the company's inability to recover if the financial fraud was widespread.
Test: Risk - Question 6
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Which risks can operate separately or in tandem, potentially causing financing costs to increase and weakening the economy?
Detailed Solution for Test: Risk - Question 6
Inflationary risk and interest rate risk can operate separately or in tandem. Rising interest rates can cause financing costs to increase, making it harder for businesses to stay in operation. When combined with inflation, rising interest rates can lead to a weaker economy and potentially stagflation, where there is both high inflation and low economic growth.
Test: Risk - Question 7
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What risk arises when assumptions underlying economic and business models are incorrect, impacting the businesses dependent on those models?
Detailed Solution for Test: Risk - Question 7
Model risk is the risk that the assumptions underlying economic and business models are incorrect. When models are inaccurate, the businesses that depend on those models can be negatively affected. This can lead to a domino effect, where struggling or failing businesses impact others that rely on them. The mortgage crisis of 2008-2009 was an example of model risk when risk exposure models did not accurately represent the true risk.
Test: Risk - Question 8
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What is the purpose of centralised data management platforms in managing valuation risk?
Detailed Solution for Test: Risk - Question 8
Centralised data management platforms serve the purpose of ensuring transparency and consistency of data, models, and processes in managing valuation risk. These platforms allow for accurate and timely information to be provided for pricing and re-pricing, as well as defining and controlling pricing and valuation procedures as required for compliance. By centralising data, cleansing, historising, and auditing can be facilitated, reducing the risk associated with inaccurate or inconsistent data.
Test: Risk - Question 9
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Which risk refers to the financial risk that an asset is overvalued and worth less than expected when it matures or is sold?
Detailed Solution for Test: Risk - Question 9
Valuation risk is the financial risk that an asset is overvalued and worth less than expected when it matures or is sold. Factors contributing to valuation risk can include incomplete data, market instability, financial modeling uncertainties, and poor data analysis. Overvalued assets can lead to losses for their owners and reputational risks for financial institutions.
Test: Risk - Question 10
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What risk arises from government actions that may constrain a corporation or industry, adversely affecting investors' holdings?
Detailed Solution for Test: Risk - Question 10
Legislative risk refers to the risk that government actions will constrain a corporation or industry, adversely affecting investors' holdings. This risk can be realized through antitrust suits, new regulations or standards, specific taxes, and other government interventions. Every industry has some degree of legislative risk, although it varies based on the industry.
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