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

Final day prep cards Flashcards

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
Q

What four things make make up portfolio credit risk?

A

Securitization, diversification, loan sales and credit derivatives

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26
Q

Are credit ratings long or short term

A

Short, usually both but mainly short

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27
Q

CAA, CCC, CA,C

A

These are the credit risk rating rankings for C. CAA is highest

28
Q

Whats not taken into account when credit ratings make their ratings

A

Length of time trading

29
Q

What are credit migration probabilites used in?

A

Credit VAR

30
Q

What analysis makes historical prediction from future losses?

A

Distribution analysis

31
Q

What type of graph does Normal distribution have?

A

Bell curve

32
Q

Another term for normal distribution

A

Gaussian Distribution

33
Q

What has fat tails?

A

Non-Normal distributions

34
Q

What is VAR dependable on?

A

Good historical data

35
Q

What can predicating tracking error otherwise be called

A

Ex Ante

36
Q

Is market timing active or passive?

A

Active

37
Q

What three risks should not be considered in isolation

A

Operational, credit and market

38
Q

How often is a matuirty ladder recorded

A

Daily

39
Q

The smaller the spread?

A

More liquid market

40
Q

Why is it important to have the board of directors accountable?

A

Ensure consistency across the board

41
Q

What os the Parametric approach

A

Reading off a graph, distribution of returns can be plotted.

42
Q

Advantage of Historical simulation

A

conceptually simple enough & no need to make assumptions about distribution

43
Q

How are returns distributed in the parametric approach

A

Normally distributed

44
Q

Disadvanatge of historical simulation

A

History will repeat itself

45
Q

Advantage to Parametric Approach

A

Simplest method

46
Q

Disadvantage to parametric

A

If returns are not normally distributed, inaccurate results

47
Q

Advantage of Monte Carlo approach

A

Can be used for non normally distributed items

48
Q

Sharpe ratio makes use of

A

Risk free return

49
Q

Information ratio makes use of

A

Tracking error

50
Q

High inforamtion ratio is a sign of what

A

Successful fund manager

51
Q

What crates an interest rate exposure?

A

Balance sheets

52
Q

How is operational risk distributed?

A

Not normally, fat tails

53
Q

Who should chair the risk committee?

A

Non-exec director

54
Q

BIS Crucial elements of an effective operational risk management framework

A

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
Q

Is Segregation of duties a preventive or defective control?

A

Preventive

56
Q

It would be usual for an operational risk policy to consider?

Key officers
Remuneration
Roles and Responsibilities
Training

A

Roles and Responsibilities

57
Q

What type of financial services is likely to have greatest exposure to credit risk?

Ifas
Banks
Custodians
Re-insurers

A

Banks

58
Q

How often do banks normally maintain counterparty credit limits in regard to liquidity risk?

A

Intra day (within the day)

59
Q

What regulation is driving towards an ERM approach

A

Basel - Pillar 2

60
Q

Most popular measurement of concentration

A

HHI

61
Q

What is excluded from the HHI ?

A

Borrowers credit quality

62
Q

Monte carlo uses what distribution?

A

Poisson

63
Q

Why would a company hold a risk assessment workshop?

A

to bring out the risk factors that could prevent their successful implementation or continuation

64
Q

Top down and bottom up approaches associated with ?

A

Risk appetite

65
Q

CRedit migration probabilities used in?

A

Trading Book

66
Q

Impairment criteria (4)

A

Liquidity issues
Breach of contract
Bankruptcy (downgrade of credit status)
Borrower/lender financial difficulties

67
Q
A

CISI Cards - Risk in Investment (19 decks)

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