NO.1 Which of the following BEST describes the utility of a risk?
A. The potential opportunity of the risk
B. The usefulness of the risk to individuals or groups
C. The finance incentive behind the risk
D. The mechanics of how a risk works
The utility of the risk describes the usefulness of a particular risk to an individual. Moreover, the
same risk can be utilized by two individuals in different ways. Financial outcomes are one of the
methods for measuring potential value for taking a risk. For example, if the individual's economic
wealth increases, the potential utility of the risk will decrease.
Answer C is incorrect. It is not the valid definition.
Answer A is incorrect. Determining financial incentive is one of the method to measure the
potential value for taking a risk, but it is not the valid definition for utility of risk.
Answer B is incorrect. It is not the valid definition.
NO.2 Which of the following is the MOST important use of KRIs?
A. Providing an indication of the enterprise's risk appetite and tolerance
B. Providing a backward-looking view on risk events that have occurred
C. Enabling the documentation and analysis of trends
D. Providing an early warning signal
Key Risk Indicators are the prime monitoring indicators of the enterprise. KRIs are highly relevant and
possess a high probability of predicting or indicating important risk. KRIs help in avoiding excessively
large number of risk indicators to manage and report that a large enterprise may have. As KRIs are
the indicators of risk, hence its most important function is to effectively give an early warning signal
that a high risk is emerging to enable management to take proactive action before the risk actually
becomes a loss.
Answer D is incorrect. This is not as important as giving early warning. Answer A is incorrect. This is
one of the important functions of KRIs which can help management
to improve but is not as important as giving early warning.
Answer C is incorrect. KRIs provide an indication of the enterprise's risk appetite and tolerance
through metric setting, but this is not as important as giving early warning.
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