Certified Financial Management Specialist Practice Exam

In financial management, what is the term for risks that influence the overall health of financial institutions?

1. Systemic Risks

2. Cohesive Picture

3. Upstream Dependencies

4. ERM Software

The correct answer is: Systemic Risks

The correct term for risks that influence the overall health of financial institutions is systemic risks. Systemic risks refer to the potential for a major disruption in the financial system due to interdependencies among various institutions or sectors. Such risks can lead to significant negative effects on the entire economy, as they encompass issues like market crashes, widespread defaults, or the failure of one large institution that affects others in the system. Understanding systemic risks is crucial for financial management, as it allows institutions to recognize vulnerabilities that could affect their stability and the broader financial ecosystem. Addressing these risks might involve regulatory measures, capital requirements, or implementation of robust risk management strategies. The other options pertain to different concepts in finance. A cohesive picture relates to the overall view of performance or strategy but does not specifically address risk. Upstream dependencies refer to the relationships and risks involved with suppliers or earlier stages in a production process, which is not directly about financial institutions. ERM software is a tool designed for Enterprise Risk Management but does not encapsulate the concept of risks affecting the financial institutions' health.