MCQ Risk - Chapter 1 Flashcards
Each risk identified would be assigned to?
A
The CEO
B
The lead person
C
The risk manager
D
The compliance officer
B
The lead person
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
Hong Kong
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
Reputational risk
Risk management focuses on identifying:
A
Has gone wrong
B
Will go wrong
C
Shouldn’t go wrong
D
Could go wrong
Could go wrong
Operational Risk consists of how many key factors?
A
Two
B
Three
C
Four
D
Six
C
Four
People, processes, systems and external events are four key factors that are collectively
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
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’.
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
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
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
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.
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
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.
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
Risks from the Competitive Environment, Social and Market Forces
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
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.
Which of the following is NOT a risk response?
A
Terminate
B
Treat
C
Transfer
D
Trade
D
Trade
Risk identification and assessment is normally performed by:
A
Business units
B
Internal audit
C
External auditors
D
Risk management functions
D
Risk management functions
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
D
Liquidity Risk
