Risk Past Questions Flashcards by Kerry kirk

A key reason why risk management should be exteneded through a project:

To maximise profits
To reduce possibility of costs increasing
Reduces likelihood of unexpected outcomes
To keep staff retained

Reduces likelihood of unexpected outcomes

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ERM Compares what two factors?

Risk appeitie & tolerance
Risk Profile & Exposure
Risk profit & Loss
Risk Mitigation & Aceeptance

Risk Profile & Exposure

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What is the difficulty of analysing the factor affecting a certain risk type

Lack of data
Boundary issues
Firms reluctnacy to share infomation
Only one risk type can be analysed

Lack of data

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A firm is found in breach of principles based framework - what action will be taken?

Fine
Legal
Liscene revoked
Slap on the wrist

Liscene revoked

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Which measurement is used to determine gross value/amount a bank is exposed to in the future at a point of potential default

Expected at default
Possiblity of default
Expected loss
Counter party exposure

Expected at default

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1st line of risk management defence is

Business Manager
Audit
ERM
Senior managers

Business Manager

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Which risk effects options?

Volaitlity
Market
Investment
Systemic

Volaitlity

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2nd line of risk management

Senior Managers
Line managers
Board of Directors
Independent risk function

Independent risk function

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A financial firm has landed a new business deal and only considered financial regualtions. It is at risk of;

Failing to recruit new customers
Loosing exsisting staff
Loosing exsisting customers
Financial market sanctions

Failing to recruit new customers

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Effective Market Risk function shoukd monitor P/L at least once a

Month
Year
Week
Day

Day

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BIS Require public discloure of

Investment Mandate
Organisational Structure
P/L Sheet
Risk Register

Organisational Structure

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A typical ivestment mandate must include the details of:

Benchamrks
Alpha ratio
Tracking error
Equities included

Tracking error

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How does interest rate risk and commodity price risk interact

IRR increases / Commodity Risk decreases
IRR increases / Commodity Risk Increases
IRR decreases/ Commodity Increases
IRR decreases/ Commodity Decreases

IRR increases / Commodity Risk Increases

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What is an example of a Market Risk Limit

Stop Loss
Var
Liquidity Var
Maturity Ladder

Stop/Loss

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What boundary issues cause issues in market risk

Price certanity
Confidence levels
Price Level Risk
KRI’s

Price Level Risk

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Credit Exposure is often undermined by an over-reliance on:

Historic Data
Notional Elements
KRI’s
KPI’s

Historic Data

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Operational Risk procedures policy need to consider what factor:

Segregation of duties
Back Testing
Use test
Scenario Analysis

Segregation of duties

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What is the ratio of capital adequay laid out in the Basel Principles

Leverage ratio
Liquidity ratio
Boundary limit
Sharpe ratio

Leverage ratio

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What determines liquidity risk within a firms assets:

Book of records
Funding Liqudiity
Matuirty ladder
Marketability

Marketability

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Loss Casual Analysis covers what?

Loss data
Root causes of risk
Future Exposure
Nominal returns

Root causes of risk

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A graphical representation of operational risk losses will tend to have

Possion Distribution
Fat Tails
Uneven returns
Low standard deviation

Fat Tails

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What type of external risk is most likely to be reduced/mitigated by building relationships at a senior level

Sharehodler
Stakeholder
Customer
Moral Hazard

Stakeholder

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what is the third line of risk management

Internal Audit
Line managers
KRI’s
Board of directors

Internal Audit

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After a business process is altered/changed at bank settlements, what is the first operation risk process that is required by the firm

Outsources all risks to external party
In form internal audit
Cancel risk mitigation strategy
Asses risk control structure

Asses risk control structure

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What are tkey weakness of risk modelling? Subjective data can often skew business results Outliers in the data can cause inaccurate reporting Modelling methods are only as valid as the confidence levels behind them Model due to its various shortcomings, approximations and uncertantites. Limitations are also a consequence of assumptions underlying

Model due to its various shortcomings, approximations and uncertantites. Limitations are also a consequence of assumptions underlying

What are the key weakness of risk modelling Implementing the outuput of a model and being able to asses the value of that implementation, the easier it is to gauge accuracy Validating the quality of that data with external and internal experts Performing loss distribution analysis Review using external audit

Implementing the outuput of a model and being able to asses the value of that implementation, the easier it is to gauge accuracy

What is an advantage of VAR Establishes a minimum loss in a measure period Provides clear view of expected losses Easy to understand Formed in a bottom up approach

Establishes a minimum loss in a measure period

What analysis isused to estimate normal growth in a new deposit account? Behavioural analysis General market conditions Liquidity at risk analysis Capital at risk analysis

liquidity at risk analysis

KRI;s help a firm anticipate a problem by? Allow limits to be set Allow trends to be monitored Allow breaches to be captured Allow risks to be identified at the process level

Allows trends to be monitored

What is the key benefits of a well constructed risk model? Clearer view into the data behind risk making descions Able to show senior management risk data in a clear and consice way Competitive advantage and makes quicker decision making and can automate complex methods Tighter profit margins

Competitive advantage and makes quicker decision making and can automate complex methods

Best way to address risk with a self-certification methods Used soley on its own Used alongside VaR Used with data from internal and external experts Used in conjection with other methods

Used in conjection with other methods

What is an executive sponsor? The fundraiser The key stakeholder in a ERM set up The line manager resposible for each risk The right to implement and establish an ERM program

The right to implement and establish an ERM program

What does Ex-Post relate to : Historical returns Future losses Var Monte Carlo simulation

Historical returns

Topdown and bottum-up approaches are typically associated with which of the following risk concepts? Risk Mitigation Risk Profile Risk Ranking Risk Appetite

Risk Appetite

What action should a firm outake to mitigate the risk of 'Dirty Money' being integrated into the legitimate financial system Keep Adequate records Under-take customer due diligence Report suspicios transactions Restrict the movement of money cross-border

Keep Adequate records

Credit exposure consists of two parts: Market risk & financial risk exposure Gross risk & net risk Counterparty & Portfolio Current exposure & Future exposure

Current exposure & Future exposure

Under writing standards are employed by lenders to manage which type of risk? Concentration Credit Market New Issue

Credit

In what kind of risk model is a scenario impact distribution commonly simulated with log normal distribution? Liquidity at risk Market value at risk Credit value at risk Operational risk

Operational risk

A firms credit risk function is responsible for Eliminating the firms credit risk entirley Meausring & Monitoring credit exposure on a monthly basis Ensuring the firms credit risk is properly managed Providng credit risk training courses for staff

Ensuring the firms credit risk is properly managed

What following is most important if risks are to be meaningfully aggregated in EPM Cultural differences Distinguishing between firms risks and client risks Inter-Departmental responsibility Consistent confidence levels and time frame

Consistent confidence levels and time frame

What functional area would normally be outside of day to day activities for ERM Compliance Finance Internal Audit Risk Management

Internal Audit

What term best describes the quantitave assessment of the risk profile Scenario analysis Likelihood and Impact Behavioral analysis VaR

Likelhood and impact

Credit Migration Probabilities are used to better understand Trading book risk Counterparty exposure The rating of a credit in one years time Issuer risk

The rating of a credit in one years time or trading book risk?

which factor is excluded from the herfindahl hirschman index Any that is not linked to market concentration

Any that is not linked to market concentration

Comparing VaR predictions with actual exposure benefits? Implementation of new risk procedures Accuracy of risk models ERM Validating data

Accuracy of risk models

Succession risk is mitigated to control Board of directors disputes Concentration risk Key personal change Segregation of duties

Key personal change

56. A limitation of using credit ratings for bonds is that they: A. ignore historical data B. are primarily opinion based C. only measure liquidity risk D. cannot be downgraded once allocated

B. are primarily opinion based

What boundary risks cause issues in credit risk Internal Processes Issuer risk Counter party exposure Settlement Risk

Internal Processes

What are the advantages of VaR? Establish a minimum loss in a measure period Common Comparison standard across all asset classes Effective even with limited historical data Effective for all types of financial instruments

Common Comparison standard across all asset classes

What has Gaussian distribution Liquidity VaR regression analysis Bell curve Normal Distribution

Bell curve

What has possion distribution? Historical analysis Monte carlo Market VaR Credit VaR

Monte carlo

What distribution is Operational Risk Scenario Modelling Normal distribution Possion distribution Gaussian distribution Lognormal distribution

log normal distributed

Why is peer reviewing good? Ensures risks are mitigated in line with the risk profile Ensures risks are mitigated in line with house rules Ensures risks are managed collectively Reduces morale hazard

Ensures risks are mitigated in line with house rules

Which of the following is a main factor towards determining a firms risk and control cultures Car parking for employees Extent of change which the organisation is subject Degree of surplus regulation capital that is assigned to each business unit Use of VaR models in high areas

Degree of surplus regulation capital that is assigned to each business unit

Which of the following is a recognised Basel operation risk category: - Business continuity - External fraud - Liquidity analysis - Information Security

External fraud

Where a trading firm engages in high frequency trading it typically enables: Transaction (txn) free of market risk Txn with tighter spreads Pricing projections based on stress testing Pricing projections based on log normal distributions

Txn with tighter spreads

A data set with Gaussian features is: - Log normal - Pretty to look at - Normally distributed - Cyclical

- Normally distributed

One of the main reasons for a “sources of assurance” section in a risk log is to: - Compare mitigation records - Enable periodic re-assessment - Indicate relative importance - Assign departmental responsibility

Enable periodic re-assessment

The main capital ratios laid down by Basel Accords are expressed by company capital to: - Risk weighted assets - Off-Balance sheet assets - Risk weighted liabilities - Off balance sheet liabilities

- Risk weighted assets

What is the parametric approach to value at risk? Compiling a heat map Standard deviation to plot the graph Log normal distributions to calculate exposure Counter party credit checks

Standard deviation to plot the graph

Exisiting management infomation (MI) is inadequate for operational risk because Designed to monitor performance not risk Tends to have a short term focus Does not account for high impact, low frequency events Tends to have a predominat focus on the financial position of the firm

Designed to monitor performance not risk

When considering the credit rating by agencies, it is important to remember: Measure only the risk and impact of default Measure only their prospective liquidity Do not take into consideration general current financial conditions Are less relible then firms own credit analysis

Measure only the risk and impact of default

Short dated goverment bond is typically used to calculate: Alpha Beta Sharpe Ratio Information Ratio

Sharpe Ratio

Which of the following is commonly used for modelling operational risk? A. Lognormal B. Abnormal C. Normal D. Exponential abnormal

A. Lognormal

Where VAR back testing shows unsatisfactory differences between the estimates and reality, what action is normall taken? A. Additional capital is sought B. The model methodology is revised C. A report is immediately issued to the regulator D. Extra hedging is arranged

B. The model methodology is revised

The risk of a difference in the impact of market factors on the price of two similar investments is known as: A. volatility risk B. basis risk C. settlement risk D. liquidity risk

B. basis risk

64. For large public firms, which corporate role should chair the risk committee? A. A non-executive director B. The CRO C. The CEO D. An executive director

A. A non-executive director

72. The risk of contagion describes: A. a situation where the failure of one firm has a knock-on effect on the confidence placed in other firms in the industry B. a situation where poor business practices result in risk being inadequately managed throughout the industry C. a situation in which a flu (or other) pandemic causes staff shortages throughout the financial services sector D. a situation where cyber defenses break down and allow a virus or other malware to penetrate the firm’s IT systems

A. a situation where the failure of one firm has a knock-on effect on the confidence placed in other firms in the industry

A firm’s risk appetite is: The amount of risk that a firm is willing to accept in the pursuit of its business objectives A measure of how much risk a firm has experienced over the previous 12 months at a 99.5% confidence level The type of risk that a firm is willing to accept in the pursuit of its business objectives The type and amount of risk that a firm is willing to accept in the pursuit of its business objectives

The type of risk that a firm is willing to accept in the pursuit of its business objectives

82. Which type of risk does resilience measure? A. Market risk B. Liquidity risk C. Credit risk D. Investment risk

B. Liquidity risk

89. The market risk appetite within an investment management firm is more likely to be defined: A. across the board B. per fund C. per fund manager D. per territory

B. per fund

92. What is the relationship between the variance and the standard deviation? A. The variance is the square root of the standard deviation B. The standard deviation is the square root of the variance C. The standard deviation is the square of the variance D. No relationship

B. The standard deviation is the square root of the variance

95. If a bank in the UK faces liquidity issues in a ‘normal’ market situation, one way it could mitigate the impact is to: A. report the matter to the regulator immediately B. draw down its loan facilities at the Bank of England C. recalibrate its maturity ladder D. increase the size of its loan book

B. draw down its loan facilities at the Bank of England

A firm’s network defences can BEST be strengthened against cyber threats via: A. removable media controls B. user education and awareness C. penetration testing D. user privilege testing

C. penetration testing

Are you going to pass? Yes No

Yes

Risk Past Questions Flashcards

(75 cards)