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CISI Cards - Risk in Investment > Final day prep cards > Flashcards

Final day prep cards Flashcards

(67 cards)

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1
Q

What are the 6 BIS Risks

A

Operational, Credit, Market, Asset Liquidity, Funding Liquidity, Interest Rate

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2
Q

What 4 risks are covered under market participant risks

A

Credit, Operational,Market,Liquidity

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3
Q

What did BASEL 2 introduce a requirement for?

A

Operational risk management

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4
Q

What is a ‘Moral Hazard’

A

Staff behave differently when protected from the effects of risk they take

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5
Q

Out of the three pillars, which one is Semi-Formulaic

A

Pillar 1

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6
Q

What does not have an impact on financial reporting

A

Unauthorized trading

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7
Q

Out of the three pillars which one is quantative in nature?

A

Pillar 1

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8
Q

How often is back testing done and what must happen if figures aren’t good

A

Daily and revise VAR

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9
Q

Who is the global standard setter for prudential regulation?

A

BCBS

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10
Q

6 BCBS Preconditions?

A

Macroeconomic polices
Framework for financial stability
Rules governing financial markets
Public Infrastructure
Clear framework for crisis management
Systemic protection
Market discipline

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11
Q

Pillar 1 basel accord

A

Min reg requirments (8%)

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12
Q

Pillar 2 basel accord?

A

Supervisory process

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13
Q

Basel committe risk type - Client, products and Business practices

A

failure to meet client obligations or design failures of products

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14
Q

Pillar 3 basel accord?

A

Market discipline

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15
Q

Order of Risk Management>

A

Identification
Measure & Assessment
Mgmt and Cntrl
Risk Monitoring
Risk Reporting
Risk policy & appetite

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16
Q

Basel Committe risk type - Execution, delivery and process management

A

Losses from failed processes or from failed counterparties and vendors

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17
Q

Main function of risk reporting

A

Setting limits, recording breaches and near misses

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18
Q

Financial crime - What is Placement

A

Introduction of dirty money in financial system

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19
Q

Financial crime - What is Layering

A

Moving money around to make it harder to track

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20
Q

Financial crime - What is Integration

A

Clean money is now in the system

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21
Q

What does Historical Event Data Evaluation do for a firm?

A

Places losses in SET CATEGORIES

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22
Q

How are KRIs difficult to obtain?

A

Automatically

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23
Q

What risk is hardest to asses and measure?

A

People

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24
Q

Is operational risk policy a document or a process

A

Document

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25
What four things make make up portfolio credit risk?
Securitization, diversification, loan sales and credit derivatives
26
Are credit ratings long or short term
Short, usually both but mainly short
27
CAA, CCC, CA,C
These are the credit risk rating rankings for C. CAA is highest
28
Whats not taken into account when credit ratings make their ratings
Length of time trading
29
What are credit migration probabilites used in?
Credit VAR
30
What analysis makes historical prediction from future losses?
Distribution analysis
31
What type of graph does Normal distribution have?
Bell curve
32
Another term for normal distribution
Gaussian Distribution
33
What has fat tails?
Non-Normal distributions
34
What is VAR dependable on?
Good historical data
35
What can predicating tracking error otherwise be called
Ex Ante
36
Is market timing active or passive?
Active
37
What three risks should not be considered in isolation
Operational, credit and market
38
How often is a matuirty ladder recorded
Daily
39
The smaller the spread?
More liquid market
40
Why is it important to have the board of directors accountable?
Ensure consistency across the board
41
What os the Parametric approach
Reading off a graph, distribution of returns can be plotted.
42
Advantage of Historical simulation
conceptually simple enough & no need to make assumptions about distribution
43
How are returns distributed in the parametric approach
Normally distributed
44
Disadvanatge of historical simulation
History will repeat itself
45
Advantage to Parametric Approach
Simplest method
46
Disadvantage to parametric
If returns are not normally distributed, inaccurate results
47
Advantage of Monte Carlo approach
Can be used for non normally distributed items
48
Sharpe ratio makes use of
Risk free return
49
Information ratio makes use of
Tracking error
50
High inforamtion ratio is a sign of what
Successful fund manager
51
What crates an interest rate exposure?
Balance sheets
52
How is operational risk distributed?
Not normally, fat tails
53
Who should chair the risk committee?
Non-exec director
54
BIS Crucial elements of an effective operational risk management framework
Clear risk oversight by the board and senior management Strong operational risk culture Stronger internal culture Clear lines responsibility Seg of duties Effective internal reporting Contingency planning
55
Is Segregation of duties a preventive or defective control?
Preventive
56
It would be usual for an operational risk policy to consider? Key officers Remuneration Roles and Responsibilities Training
Roles and Responsibilities
57
What type of financial services is likely to have greatest exposure to credit risk? Ifas Banks Custodians Re-insurers
Banks
58
How often do banks normally maintain counterparty credit limits in regard to liquidity risk?
Intra day (within the day)
59
What regulation is driving towards an ERM approach
Basel - Pillar 2
60
Most popular measurement of concentration
HHI
61
What is excluded from the HHI ?
Borrowers credit quality
62
Monte carlo uses what distribution?
Poisson
63
Why would a company hold a risk assessment workshop?
to bring out the risk factors that could prevent their successful implementation or continuation
64
Top down and bottom up approaches associated with ?
Risk appetite
65
CRedit migration probabilities used in?
Trading Book
66
Impairment criteria (4)
Liquidity issues Breach of contract Bankruptcy (downgrade of credit status) Borrower/lender financial difficulties
67

CISI Cards - Risk in Investment (19 decks)

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