HKSI Paper 7 Financial risk management question: Lion Rock Brokerage

HKSI Paper 7Financial risk management

Lion Rock Brokerage takes the following actions. Which of them are risk reduction? I. Setting a credit limit for each margin client II. Buying professional indemnity insurance III. Having a second staff member check each payment IV. Closing its commodity futures desk

A I and II only
B I and III only
C II and IV only
D I, III and IV only

Show the answer and explanation

Answer: B. I and III only

Risk reduction keeps the activity but lowers the likelihood or the size of a loss. Statement I is reduction: a credit limit caps the exposure to each client. Statement III is reduction: a second-person (maker-checker) review cuts the chance of an erroneous or fraudulent payment. Statement II is transfer: insurance passes the loss to the insurer. Statement IV is avoidance: closing the desk removes the activity and with it the exposure. Source: Standard risk management framework (risk treatment: avoid, reduce, transfer, accept) (as at October 2026).

Common mistake

Calling insurance a reduction technique. Insurance does not make a loss less likely or smaller for the business; it shifts who pays for it.

Practise more Paper 7 Financial risk management questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: Financial risk management HKSI Paper 7 practice questions & mock exams

Related HKSI Paper 7 questions

A fund administrator expects pricing-error losses of about HK$50,000 a year. Rather than buy cover, it pays HK$50,000 a year from its own profits into an internal self-insurance fund. Which technique is this?A stock's return next year is estimated at 18% (probability 0.3), 8% (probability 0.5) or −10% (probability 0.2). What is its expected return?Harbour Securities stops offering margin financing because the possible credit losses exceed its board's tolerance. Which risk management technique is this?

Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.

Start practising →

Original study material mapped to the public HKSI Paper 7 syllabus. Unofficial, not endorsed by HKSI Institute or the SFC. Verify figures and rules against current guidance before relying on them.