MCQ Risk - Chapter 1 Flashcards

1
Q

Each risk identified would be assigned to?

A
The CEO

B
The lead person

C
The risk manager

D
The compliance officer

A

B
The lead person

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2
Q

Which was the first Asian jurisdiction to enact comprehensive personal data privacy legislation and to establish an independent privacy regulator?

A
Hong Kong

B
Japan

C
Malaysia

D
Singapore

A

Hong Kong

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3
Q

The loss of employees or managers within an organisation, with a subsequent increase in hiring costs, or staff downtime is most likely to be classified as which one of the following?

A
Reputational risk

B
Operational risk

C
Market risk

D
Inherent risk

A

A
Reputational risk

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4
Q

Risk management focuses on identifying:

A
Has gone wrong

B
Will go wrong

C
Shouldn’t go wrong

D
Could go wrong

A

Could go wrong

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5
Q

Operational Risk consists of how many key factors?

A
Two

B
Three

C
Four

D
Six

A

C
Four

People, processes, systems and external events are four key factors that are collectively

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6
Q

The current or prospective risk to earnings and capital arising from changes in the business environment and from adverse business decisions, improper implementation of decisions or lack of responsiveness to changes in the business environment is the definition for:

A
Operational Risk

B
Strategic Risk

C
Investment Risk

D
Risks from the Competitive Environment, Social and Market Forces

A

B
Strategic Risk

Explanation - Correct Answer: B
The European Banking Authority (EBA) defines strategic risk as: ‘the current or prospective risk to earnings and capital arising from changes in the business environment and from adverse business decisions, improper implementation of decisions or lack of responsiveness to changes in the business environment’.

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7
Q

Which one of the following is a specific key areas of risk within financial services as defined by the Bank for International Settlements (BIS)?

A
Price Level Risk

B
Currency Risk

C
Interest Rate Risk

D
Basis Risk

A

Interest Rate Risk

Explanation - Correct Answer: C
The Bank for International Settlements (BIS) defines the following specific key areas of risk within
financial services: Operational Risk; Credit Risk; Market and Asset Liquidity Risks; Funding Liquidity Risk and Interest Rate Risk

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8
Q

The management of which risk would enable the senior management of a firm to make balanced, firm-wide risk decisions?

A
Internal Strategic Risk

B
External Strategic Risk

C
Enterprise Risk

D
Operational Risk

A

Explanation - Correct Answer: C
Enterprise risk management is a method of providing the firm with a succinct view of all its key risk information, thus enabling the senior team to make balanced, firm-wide risk decisions.

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9
Q

The loss of employees or managers within an organisation, with a subsequent increase in hiring costs, or staff downtime is most likely to be classified as which one of the following?

A
Reputational risk

B
Operational risk

C
Market risk

D
Inherent risk

A

Explanation - Correct Answer: A
Reputational risk is either an outcome itself or results as a direct or indirect consequence from other risk.

Reputational risk can cause losses for a firm in a number of ways including:

Loss of current or future customers.

Loss of employees or managers within the organisation, an increase in hiring costs, or staff downtime.

Loss of current or future business partners.

Increased costs of financial funding via credit or equity markets.

Increased costs due to government regulations, fines, or other penalties.

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10
Q

The current or prospective risk to earnings and capital arising from changes in the business environment and from adverse business decisions, improper implementation of decisions or lack of responsiveness to changes in the business environment is the definition for:

A
Operational Risk

B
Strategic Risk

C
Investment Risk

D
Risks from the Competitive Environment, Social and Market Forces

A

Risks from the Competitive Environment, Social and Market Forces

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11
Q

Risk tolerance given defined confidence level, is explained as:

A
Value at Risk

B
Statistics

C
A firm’s risk appetite

D
Normal distribution analysis

A

Explanation - Correct Answer: C
Tricky question. For VaR you would require 3 compnents: Amount, time and confidence level. The question is only stating a confidence level.
All risk is not necessarily bad. In order to make profit, some level of risk needs to be taken, representing a firm’s risk appetite derived from their risk tolerence.

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12
Q

Which of the following is NOT a risk response?

A
Terminate

B
Treat

C
Transfer

D
Trade

A

D
Trade

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13
Q

Risk identification and assessment is normally performed by:

A
Business units

B
Internal audit

C
External auditors

D
Risk management functions

A

D
Risk management functions

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14
Q

The management of all of the following risks is at the heart of complex financial transactions performed by market participants , except for:

A
Credit Risk

B
Operational Risk

C
Market Risk

D
Liquidity Risk

A

D
Liquidity Risk

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15
Q
A
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16
Q
A
17
Q

The total amount of risk that a firm is willing to take is referred to as:

A
Risk culture

B
Risk tolerance

C
Risk appetite

D
Risk residue

A

C
Risk appetite

18
Q

Which of the following is not a level of risk to consider when taking a macro view of the financial services industry?

A
Risk between firms

B
Risk of individual firms

C
The industry as a whole

D
The regulator

A

D
The regulator

19
Q

Each risk identified would be assigned to?

A
The CEO

B
The lead person

C
The risk manager

D
The compliance officer

A

B
The lead person

20
Q

Which one of the following is most likely to be considered a risk from the Competitive Environment, Social and Market Forces?

A
Attitudes to living on credit

B
Changes in tax laws

C
Changes in economic policy

D
Over-reliance on one customer

A

Explanation - Correct Answer: A
Firms in the finance sector are particularly susceptible to certain changes in social and market
forces, such as:
The propensity to save (how will people are to save)
Attitudes to living on credit
House prices and their relationship to demographic changes.

21
Q

hich one of the following is a specific key areas of risk within financial services as defined by the Bank for International Settlements (BIS)?

A
Price Level Risk

B
Currency Risk

C
Interest Rate Risk

D
Basis Risk

A

Explanation - Correct Answer: C
The Bank for International Settlements (BIS) defines the following specific key areas of risk within
financial services: Operational Risk; Credit Risk; Market and Asset Liquidity Risks; Funding Liquidity Risk and Interest Rate Risk

22
Q

Top-down and bottom up approaches are typically associated with which of the following risk concepts?

A

Risk mitigation
Risk profile
Risk ranking
Risk appetite

23
Q
A