10 free, exam-style Associate in Risk Management (ARM) practice questions with answers and explanations. No signup required. Work through them below, then take the full free ARM practice test to study every exam domain.
A regional bakery purchases a fire insurance policy on its production facility and, in the same quarter, invests its retained earnings in a new line of frozen products it hopes will expand market share. The fire risk and the new-product risk are best classified, respectively, as:
Correct answer: B - Pure risk and speculative risk
A logistics company tracks two metrics monthly: (1) the number of completed driver fatigue-management training sessions, and (2) the number of vehicle accidents reported in the prior month. These two metrics are best described, respectively, as:
Correct answer: C - A leading KPI and a lagging KPI
An organization adopting a new enterprise risk framework debates how to define risk in its corporate policy. The CFO argues risk should be defined as the possibility of an event adversely affecting objectives, while the Chief Strategy Officer argues risk should be defined as the effect of uncertainty on objectives, capturing both upside and downside. These two positions align, respectively, with:
Correct answer: B - COSO ERM 2017 and ISO 31000:2018
A manufacturer faces the following four exposures in the same fiscal year: (1) a possible factory fire, (2) a sudden spike in raw-material commodity prices, (3) a key supplier's bankruptcy disrupting just-in-time delivery, and (4) a competitor launching a disruptive technology that could obsolete the company's flagship product. These four exposures fall, in order, into which risk quadrants?
Correct answer: A - Hazard, Financial, Operational, Strategic
An internal auditor reviewing a company's anti-fraud program documents the following: (1) the company has a written code of conduct signed by all employees, (2) management has identified the financial reporting processes most susceptible to fraud, (3) segregation of duties has been implemented in the accounts payable function, and (4) the audit committee receives quarterly reports on fraud hotline activity. Item (3) - segregation of duties - falls under which component of the COSO Internal Control Framework?
Correct answer: C - Control Activities
A bank's board states that the institution is willing to accept up to $50 million in aggregate credit losses per year in pursuit of its lending strategy. Operating management is given authority to allow actual losses to fluctuate within plus or minus $5 million of that figure before escalation is required. The bank's total loss-absorbing capital is $200 million. The $50 million, the $5 million band, and the $200 million represent, respectively:
Correct answer: C - Risk appetite, risk tolerance, and risk capacity
A portfolio's daily returns are approximately normally distributed with a mean of 0 and a standard deviation of $2 million. Using the parametric VaR formula at a 95% confidence level (z = 1.645), the one-day Value at Risk is closest to:
Correct answer: B - $3.29 million
A risk manager is profiling four organizations using the Competing Values Framework. Which scenario most clearly describes an Adhocracy culture?
Correct answer: C - An enterprise software vendor whose CEO publicly rewards the team that ships the most experimental features per quarter and tolerates failed product launches as 'learning capital'
A regional retailer's distribution center is destroyed by a tornado at 3 a.m. on a Tuesday. The continuity team executes the Strategic Redeployment Plan. Which sequence correctly orders the four stages of the SRP as the team works through the response?
Correct answer: B - Emergency → Alternative marketing → Contingency production → Communication
A CFO presents the following figures for the prior year as part of a 'total cost of risk' analysis: insurance premiums of $4.2M; retained losses (deductibles and uninsured losses) of $1.8M; loss-control program costs of $0.6M; risk management department salaries and overhead of $0.4M; and an estimated $0.3M in lost productivity attributable to unresolved residual uncertainty. Which of the following best describes the analysis?
Correct answer: B - It is complete, and the total cost of risk is $7.3M
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