Chapter 1 MCQs Flashcards
What does operational risk include according to the Basel II definition?
A) Market Risk
B) Credit Risk
C) Risk of loss from inadequate or failed internal processes
D) Strategic Risk
C
Which of the following is NOT a common risk type?
A) Strategic risk
B) Liquidity risk
C) Technological risk
D) Insurance risk
C
How does operational risk relate to credit risk?
A) They are mutually exclusive with no overlap.
B) Operational risk can lead to credit risk through inadequate processes.
C) Credit risk is a subset of operational risk.
D) Credit risk directly influences operational risk.
B
What is the primary cause of operational risk?
A) External market changes
B) Inadequate or failed internal processes, people, and systems
C) Poor strategic decision-making
D) Changes in credit ratings
B
Which of the following is an example of external fraud?
A) Misappropriation of assets
B) Theft of information
C) Discrimination during hiring process
D) Software defects
B
What role do governance structures play in operational risk management?
A) Define strategic objectives
B) Provide IT support
C) Facilitate risk identification and assessment
D) Ensure compliance with market regulations
C
Which of the following is considered a key component of an operational risk management framework?
A) Credit risk analysis
B) Market trend forecasting
C) Risk and control self-assessments
D) Financial statement auditing
C
How is legal risk classified in the context of operational risk according to Basel II?
A) Excluded
B) Included
C) Considered a strategic risk
D) Only relevant for insurance companies
B
What is the relationship between operational risk and strategic risk?
A) Strategic risk is a type of operational risk.
B) Operational risk events can lead to strategic risks.
C) Operational risk and strategic risk are unrelated.
D) Strategic risks include operational risks.
B
Which of the following does NOT directly contribute to operational risk?
A) Human errors
B) System failures
C) Financial market fluctuations
D) Process inadequacies
C
What is the significance of categorizing operational risks?
A) To simplify reporting to regulators
B) To identify and prioritize risks for management
C) To ensure accurate financial forecasting
D) To allocate budget for IT upgrades
B
Which of the following best describes operational risk appetite?
A) The total market risk a firm is willing to accept
B) The amount of operational risk a firm is willing to pursue or retain
C) A fixed percentage of annual revenue
D) The level of strategic risk considered acceptable by shareholders
B
How can operational risk be quantitatively expressed?
A) Through the use of risk matrices
B) By calculating credit risk exposure
C) Using market trend analyses
D) By determining the company’s share price volatility
A
What is the role of scenario analysis in operational risk management?
A) To predict market trends
B) To assess potential operational risk events and their impact
C) To calculate credit risk exposure
D) To plan strategic investments
B
Which of the following is a benefit of risk and control self-assessments (RCSAs)?
A) They eliminate the need for external audits
B) They provide a definitive measure of risk appetite
C) They help identify and assess internal and external operational risks
D) They ensure compliance with credit risk regulations
C
