MCQ Risk - Mock Questions

Question 1

Following a merger of two financial institutions and the bringing together of two systems into one, which one of the following would be a priority for managers of the change environment?

A To ensure all employees have uniform and consistent contracts of employment

B To ensure the risk culture is clearly defined and documented

C To ensure morale from employees of the two organisations is not diminished by the merger

D To ensure that the new company is profitable by ensuring that the merger is worthwhile

Answer 1

The correct answer is: C - To ensure morale from employees of the two organisations is not diminished by the merger

Question 2

Which of the following is the lowest short-term credit rating?
A Caa
B C
C Ca
D CCC

Answer 2

B C

Question 3

Which of the following is not a key area to consider when implementing an effective ERM policy?

A Has the firm adopted a common process for risk management?
B Are risk management tools being managed effectively and consistently?
C Do all a firm’s business and operational plans consider risks as well as opportunities?
D Have all staff been trained in risk management issues?

Answer 3

D Have all staff been trained in risk management issues?

Question 4

Which of the following would BEST explain why reference data details in a firm’s transaction system are incorrect?

A Unresponsive processing systems
B Inappropriate manager intervention
C Manual input error
D Computer systems are not able to carry the extra information

Answer 4

C Manual input error

Question 5

When investing in a company’s shares which one of these market risk factors should be considered?

A Volatility risk
B Size of risk
C Basis risk
D Direct factors

Answer 5

The correct answer is: D - Direct factors

Question 6

Which of the following is a main function of risk reporting?

A To establish the cost of risk measurement
B To establish firm-wide adoption of appropriate risk parameters
C To determine acceptable levels of risk
D To reduce uncertainty

Answer 6

The correct answer is: D - To reduce uncertainty

Question 7

Which of the following is not a common driver in developing a firm-wide approach to operational risk?

A Regional differences
B Divisional differences and autonomy
C The need for centralised control
D Reduce capital allocation

Answer 7

D Reduce capital allocation

Question 8

Which of the following is a mathematical model/tool used to measure tracking error?

A Information ratio
B Beta coefficients
C Linear regression
D Standard deviation

Answer 8

Standard deviation

Question 9

Which of the following is NOT regarded as a weakness in historical data used for credit risk management?

A Major market movement making historic data unreliable
B Economic or political changes making data irrelevant or misleading C Simple lack of availability of data, e.g. emerging markets
D Unreliable credit rating agencies

Answer 9

D Unreliable credit rating agencies

Question 10

Which of the following is not a potential risk mitigation strategy?
A Retain the risk
B Transfer the risk
C Reduce the likelihood
D Change the risk

Answer 10

The correct answer is: D - Change the risk

Question 11

Which of the following is a term given to risk that can be diversified away?

A Unique risk
B Business risk
C Market risk
D Systematic risk

Answer 11

The correct answer is: A - Unique risk

Question 12

Which of the following is NOT a common assumption that can produce inaccurate credit risk calculations and inaccuracies in risk models?

A Using simplified calculations for current exposure
B Assuming that some exposures have equal credit risk
C Assuming that default risk stays the same over time
D A lack of recognition of portfolio diversification

Answer 12

• A lack of recognition of portfolio diversification

Question 13

Which of the following is probably NOT a Key Risk Indicator with respect to transaction capture?

A The number of transactions not captured within a specific period
B The number of open option positions
C The number of errors detected by the reconciliation of transactions
D The volume of transactions

Answer 13

You answered : D - The volume of transactions

Question 14

The likelihood of a loss occurring is 32% and the loss, if realized, is expected to be $76.2m. What is the quantitative value based on these parameters?

A$76.2m
B$24.4m
C$238.1m
D$51.8m

Answer 14

Explanation
32% x $76.2m = $24.4m.

Question 15

Which of the following is probably NOT a Key Risk Indicator with respect to transaction capture?

A The number of transactions not captured within a specific period B The number of open option positions
C The number of errors detected by the reconciliation of transactions
D The volume of transactions

Answer 15

The number of open positions would only give a firm a fraction of the story about transaction capture. The volume of transactions would give a better indicator. B

Question 16

Which of the following is NOT a common assumption that can produce inaccurate credit risk calculations and inaccuracies in risk models?

A Using simplified calculations for current exposure
B Assuming that some exposures have equal credit risk
C Assuming that default risk stays the same over time
D A lack of recognition of portfolio diversification

Answer 16

Explanation
The issue is with using simplified calculations of potential exposure, not current exposure.

A - Using simplified calculations for current exposure

Question 17

Which of the following is a means of measuring variability, uncertainty or volatility?

A The bell curve
B The standard deviation
C The confidence level
D The mean of returns

Question 18

Who acts as the central bank for The Deutsche Bundesbank, the central bank of the Federal Republic of Germany?

A The Bank for International Settlements
B Basel Committee for Banking Supervision
C The World Bank
D The European Central Bank

Answer 18

D The European Central Bank

Question 19

Staff must be given training with respect to;

I money laundering
II market abuse
III Terrorism

A I and II
B I and III
C all of the above
D II and III

Answer 19

C all of the above

Question 20

Which of the following is not a responsibility of the Credit Risk Management function?

A Ensuring the credit policy is adhered to
B Setting, monitoring and reviewing credit limits
C Determining minimum level of capital adequacy
D Reporting and escalating risk issues to senior management

Answer 20

C Determining minimum level of capital adequacy

Question 21

Which function is responsible for assessing the overall effectiveness of the model risk management framework?

A Chief risk officer
B Board of directors
C Senior management
D Internal audit

Answer 21

D Internal audit

Question 22

Which of the following is true of market abuse?

A It is a criminal offence
B It is a civil offence
C It has a maximum jail term of 7 years
D It has a maximum jail term of 14 years

Answer 22

The correct answer is: B - It is a civil offence

Question 23

Which of the following is NOT an important aspect of risk management?

A Implementation
B A structured process
C Unacceptable levels
D Reduces the likelihood

Answer 23

he missing aspect is acceptable levels as risk cannot be entirely eliminated.