QUESTION 1 A good ERM system will provide managers with information they did not

Question

QUESTION 1 A good ERM system will provide managers with information they did not have before in a time frame which allows them to mitigate risks and take advantage of opportunities. True False

QUESTION 2 “Tagging” in the context of ERM is the process of identifying a series of interrelated risks and looking at only the tagged risks. True False

QUESTION 3 Debtor in Possession financing (DIP financing) is often used for working capital purposes to facilitate the operations of the company during the company’s reorganization in a chapter 11 bankruptcy. True False

QUESTION 4 Hampton explains that managers use risk clusters because they find that “a graphic presentation of risk in a hierarchical structure” significantly enhances their understanding of their company’s risk exposures and relationships. True False

QUESTION 5 Under a Chapter 11 reorganization, a company usually keeps doing business and its stock and bonds may continue to trade in our securities markets. True False

QUESTION 6 A debtor's solvency is determined by the difference between the value of its assets and its liabilities. When the value of assets is less than the value of liabilities, owners are unlikely to receive any compensation in a bankruptcy reorganization. True False

QUESTION 7 Owners of a company take more financial risk than creditors. True False

Explanation / Answer

QUESTION 1 A good ERM system will provide managers with information they did not have before in a time frame which allows them to mitigate risks and take advantage of opportunities. True False

True – ERM is identification, assessment, mitigation and monitoring of risks to help reduce effect of risks on business objectives

QUESTION 2 “Tagging” in the context of ERM is the process of identifying a series of interrelated risks and looking at only the tagged risks. True False

True – This is definition of tagging

QUESTION 3 Debtor in Possession financing (DIP financing) is often used for working capital purposes to facilitate the operations of the company during the company’s reorganization in a chapter 11 bankruptcy. True False

True - DIP financing is a special form of financing provided for companies in financial distress, typically during restructuring under corporate bankruptcy law

QUESTION 4 Hampton explains that managers use risk clusters because they find that “a graphic presentation of risk in a hierarchical structure” significantly enhances their understanding of their company’s risk exposures and relationships. True False

True

QUESTION 5 Under a Chapter 11 reorganization, a company usually keeps doing business and its stock and bonds may continue to trade in our securities markets. True False

True - Chapter 11 provides a process for rehabilitating the company's faltering business and therefore company keeps doing its business and its stock and bonds may continue to trade in our securities markets

QUESTION 6 A debtor's solvency is determined by the difference between the value of its assets and its liabilities. When the value of assets is less than the value of liabilities, owners are unlikely to receive any compensation in a bankruptcy reorganization. True False

True

QUESTION 7 Owners of a company take more financial risk than creditors. True False

True – Owner of company are not promised fixed rate of return and take more risk vis a vis return while creditors are promised fixed rate of interest on money lend by them. Also, in times of bankruptcy lenders have greater right on assets than shareholders/owners

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