CIPS L5M2 Exam Practice Test Instant Access

Question 1

Which of the following will you put into box 3?

Atransfer

Btreat

Ctolerate

Dterminate

Answer : D

The correct answers are as follows:

The consequences of this risk are huge, therefore the risk should be terminated. This means the cause of the risk is taken away (i.e. the animal testing).

Question 2

Which of the following will you put into box 3?

Atolerate

Btransfer

Ctreat

Dterminate

Answer : B

The correct answers are as follows:

Question 3

What is the job of an underwriter?

Ato assist a buyer in selecting the correct insurance

Bto advise required insurance levels for a contract

Cto evaluate insurance applications

Dto determine the validity of an insurance claim

Answer : C

An underwriter evaluates insurance applications. Learn the difference between Insurance Underwriters and Claims Adjusters for the exam - this is a known topic. (A claims adjuster determines the validity of an insurance claim).

Question 4

The legal principle of insurable interest means which of the following statements are TRUE? Select TWO.

Ait is possible to insure someone else's factory

Bit is not possible to insure someone else's factory

Cit is possible to insure your supplier's factory

Dit is not possible to insure your supplier's factory

Answer : B, C

Insurable Interest means that it is not possible to insure someone else's factory. The study guide explains that you can only take out insurance where you have at least partial ownership of that risk. Therefore option 3 is also correct as you have a partial risk if something were to happen to your supplier's factory. You can take out CBI insurance for this. see p.100-101 for further s of Legal Principles of Insurance

Question 5

Fudgylicious Inc is a manufacturer of confectionary based in the United Kingdom. In one of its factories an employee has an accident during his shift which resulted in him breaking a leg and requiring surgery. Will the employer's Professional Indemnity insurance cover the cost of the operation?

Ayes- the insurance will cover all medical expenses as the accident occurred during his working hours

Byes- the insurance can be used as the accident occurred on the company's premises

Cno- the insurance would not cover the cost of surgery, only for lost wages if he is unable to work

Dno- this is not the purpose of insurance

Answer : D

The correct answer is 'no-this is not the purpose of insurance'. The question asks if Professional Indemnity Insurance can be claimed on for this- no it can't- that's not its purpose. It would be Employer's Liability insurance which could be claimed on. This question tests your understanding of the different types of insurance. There is a very similar question in the exam- so remember accidents at work are claimed against Employer's Liability insurance NOT Professional Indemnity insurance - see p.96 for more information on different types of insurance

Question 6

What is the purpose of an indemnity clause within a contract?

Ato assign risk to each party

Bto ensure both parties are adequately insured if something were to go wrong

Cto transfer risk from one party to another

Dto explain what would happen in the case of a force majeure

Answer : C

Indemnity clauses transfer risk from one party to another. It is an arrangement whereby one party promises to compensate the other party for a trigger event. An example of an indemnity clause could be a construction firm is building a new bridge and the project is supposed to be completed by 1st June. An indemnity clause may state that should the bridge not be ready by this date, the construction firm will compensate the buyer by X amount. See p.61 for more information on indemnity.

Question 7

Kieran works in the manufacturing industry and his company have just implemented LEAN production processes. Will this increase or decrease the risks in relation to security of supply?

Aincrease security of supply risks as this is a tried and tested risk reducing process

Bincrease security of supply risks as there is less buffer stock held on site

Cdecrease security of supply risks as there will be increased efficiencies

Ddecrease security of supply risks as there is less buffer stock

Answer : B

2 'increase security of supply risks as there is less buffer stock held on site' is the correct answer. With Lean manufacturing there is little or no buffer stock held. This means that if a supplier doesn't deliver on time, the whole manufacturing process will have to come to a stop until new supplies arrive. A risk of Lean Manufacturing is that you become too reliant on suppliers, and if there is a scarcity of resources or an issue with the supply chain, you are more exposed. See p.26-27 for more information on Security of Supply Risks.

CIPS L5M2 Managing Supply Chain Risk Exam Practice Test