MCQ Risk - Chapter 2 Flashcards
The ICAAP is a formalised process designed to assist in meeting the requirements of which Pillar of the Basel Accord?
A
Pillar 1
B
Pillar 2
C
Pillar 3
D
All the Pillars
B
Pillar 2
A
Calculating the minimum regulatory capital requirements
B
Identifying the sources of the different risks faced by the firm.
C
publish information about the way the firm manages the risks they face.
D
Providing additional information to assist regulators in assess the capital requirements
Providing additional information to assist regulators in assess the capital requirements
Basel II introduced requirement for:
A
Credit risk capital
B
Market risk capital
C
Compliance risk capital
D
Operational risk capital
Operational risk capital
Which of the following was set up as a forum for international cooperation on bank regulation
BCBS
IBF
World Bank
Standards Task Force
IBF (International Banking Federation)
Which is not one of the THREE important features of risk categorisation?
A
Consistent across the organisation
B
Mechanical
C
Relevant
D
Logical
Explanation - Correct Answer: B
Risk categorisation must be relevant, logical and consistent across the organisation.
Which one of the following is a requirement for a firm under an ICAAP?
A
Determine an appropriate level of capital for the identified risks.
B
Determine the minimum level of capital for the identified risks.
C
Determine the maximum level of capital for the identified risks.
D
Determine the type of capital required for the identified risks.
Explanation - Correct Answer: A
Banks in many jurisdictions, are required to establish an Internal Capital Adequacy Assessment Process (ICAAP). This is a formalised process for meeting the Basel Pillar 2 requirements
and requires a firm to:
Assess its risks and their mitigants
Subject the results to rigorous stress testing
Determine an appropriate level of capital for those risks.
Which of the following is NOT a main issue that impacts on the risk culture within an organisation?
A
Quality and integrity of staff
B
Organisation size
C
Effectiveness of the control environment
D
Reward practices
B
Organisation size
Which organisation is the primary global standard-setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters?
A
BIS
B
IMF
C
BCBS
D
ECB
Explanation - Correct Answer: C
The Basel Committee on Banking Supervision (BCBS) is the primary global standard-setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters. Its mandate is to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability
Which one of the following operational risks does not have an impact on the financial reporting function?
A
A poor relationship between the dealers and the accounting function
B
Unauthorised trading
C
Misreporting accounts because of complex aggregation rules
D
Traders misreporting transaction details
Explanation - Correct Answer: B
Unauthorised trading is clearly a problem and a risk but it does not have an impact on the financial reporting function as long as the trades are reported.
The cascade of regulations regarding operational risk is:
A
The Basel Committee sources the European Commission which, in turn, sources the FCA
B
The European Commission sources the Basel Committee which, in turn, sources the FCA
C
The FCA sources the European Commission which, in turn, sources the Basel Committee
D
The FCA sources the Basel Committee which, in turn, sources the European Commission
Explanation - Correct Answer: C
The cascade of regulations regarding operational risk from a UK firm’s point of view is the FCA, which sources the European Commission who, in turn, source the Basel Committee.
A key element within the ICAAP is that a firm is expected to detail its risk exposure. This includes providing clear information on which one of the following?
A
The firm’s risk culture
B
The firm’s risk appetite by risk category
C
The firm’s levels of inherent risk compared to residual risk
D
The firm’s residual risk by risk category
Explanation - Correct Answer: B
A key element of the ICAAP Framework is that a firm is expected to provides a clear articulation of the firm’s risk appetite by risk category, and the quantification of any risks not included in Pillar 1
Which of the following are objectives of the Basel Committee?
ITo enhance understanding of supervisory issues
IIImprove the quality of banking supervision worldwide
IIITo enforce the principles
IVTo regulate the member states A
I
B
I and III
C
I and II
D
all of the above
C
I and II
