Practice Test GeeksAmerican Academy of Financial Management (AAFM) Practice Test
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AAFM Risk Management and Ethics Flashcards

7 cards from real AAFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 AAFM Risk Management and Ethics flashcards as text

  1. Liquidity risk refers to the danger that?

    Answer: An asset cannot be sold quickly without significant price concession

    Liquidity risk is the inability to convert an asset to cash promptly at a fair price.

  2. The Sharpe ratio measures return per unit of what?

    Answer: Total risk (volatility)

    The Sharpe ratio divides excess return by standard deviation, showing return per unit of total risk.

  3. A financial professional discovers a colleague is misappropriating client funds. Ethically they should?

    Answer: Report the misconduct through appropriate channels

    Ethical duty requires reporting serious misconduct such as fraud through proper channels.

  4. Which of the following is an example of transferring risk?

    Answer: Purchasing an insurance policy

    Insurance shifts the financial burden of a loss to another party, a classic risk transfer.

  5. Know Your Customer (KYC) procedures primarily help manage which risks?

    Answer: Suitability, fraud, and money-laundering risk

    KYC supports suitable advice and helps prevent fraud and money laundering by verifying client identity and profile.

  6. Correlation between two assets close to +1 means?

    Answer: They tend to move together, offering little diversification benefit

    A correlation near +1 indicates assets move in the same direction, reducing diversification benefit.

  7. Objectivity as an ethical principle requires a financial manager to?

    Answer: Provide advice free from bias and undue influence

    Objectivity means giving unbiased advice unaffected by conflicts, pressure, or self-interest.