NEW QUESTION 56
James owns a company that provides 24×7 telephonic technical support for a technology giant. During a risk assessment, he discovered that should a natural disaster strike rendering his facility defunct, he would need at least a hundred telephone lines up and running within eight hours to keep his business running. He contacted a service provider that assured him that a hundred virtual connections can be provided to him in such a case within the time frame. For such a service, James would have to shell out $10,000 a day. James has a cold backup site that takes 48 hours to become functional. To make it a warm or a hot site, James would have to incur a cost way more than the virtual service. Hence, James kept the cold site and kept aside $20,000 from the company funds for the virtual service should this scenario occur. What is this emergency fund that James kept aside called?
Return on Risk Adjusted Capital (RORAC) is a financial metric often used to allocate funds for risk mitigation, including emergency reserves like James’ $20,000 for virtual connections. It reflects the return expected after accounting for risk costs.
* Option A (RAROC):Similar, but typically broader, not specific to emergency funds.
* Option B (RAPM):A management approach, not a fund term.
* Option C (RARORAC):A variant, less commonly used in this context.
* “RORAC quantifies funds set aside for risk scenarios, such as emergency recovery costs, ensuring financial preparedness aligns with risk exposure” (Module: Risk Management, Section: Financial Metrics).