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AAP Exam Study Cards > Risk Management > Flashcards

Risk Management Flashcards

1
Q

A plan designed to take a possible future event or circumstance into account.

A

Contingency Plan

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2
Q

This type of risk occurs when a party to a transaction cannot provide the necessary funds, as contracted, in order for settlement to occur in the Originator’s account at the ODFI.

A

Credit (Exposure) Risk

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3
Q

This type of risk occurs when a party to a transaction fails to comply, either knowingly or inadvertently with Network rules and policies, regulations and applicable US and state law.

A

Compliance Risk

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4
Q

This type of risk occurs when a payment transaction is initiated or altered by any party to the transaction in an attempt to misdirect or misappropriate funds with fraudulent intent.

A

Fraud Risk

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5
Q

This type of risk occurs when a transaction is altered or delayed due to an unintentional error.

A

Operational Risk

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6
Q

This type of risk occurs when a funds transfer system participant is unable to settle its commitments causing other participants to fail.

A

Systemic Risk

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7
Q

This type of risk is a consequence or by-product of not managing credit, compliance, fraud, operational, or systemic risks.

A

Ancillary Risk

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8
Q

This type of risk is the risk to each party of a contract that the other party will not live up to its contractual obligations. It is a risk to both parties and should be considered when evaluating a contract.

A

Counterparty Risk

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9
Q

This type of risk occurs when the movement of fraudulent or illegal payment transactions from one payment channel to another is met with inconsistent risk management practices and lack of information sharing across payment channels about fraud.

A

Cross-Channel Risk

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10
Q

This type of risk is defines as a situation in which an Originator, Third Party Sender or Third Party Service Provider transmits ACH files directly to an ACH Operator using the ODFI’s routing number and settlement account.

A

Direct Access Risk

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11
Q

DFIs must assess the risk involved with Direct Access Debit Participants, as well as, with Third Party Sender relationships and must register each such relationship with who?

A

Nacha

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12
Q

This type of risk occurs from an institution’s failure to enact appropriate policies, procedures or controls to ensure it conforms to laws, regulations, contractual arrangements and other legally binding agreements and requirements.

A

Legal Risk

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13
Q

This type of risk occurs when negative publicity regarding an institution’s business practices leads to a loss of revenue or litigation. For retail payment related systems, this risk is linked to consumer expectations regarding the delivery of retail payment services, and the institution’s ability to meet its regulatory and consumer protection obligations related to those services.

A

Reputation Risk

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14
Q

This risk involves the possibility that earnings or capital will be negatively affected by an institution’s inability to meet its obligations when they come due. This risk is the risk that the financial institution cannot settle an obligation for full value when it is due.

A

Liquidity Risk

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15
Q

This risk is associated with the financial institution’s mission and future business plans. This risk category includes plans for entering new business lines, expanding existing services through mergers and acquisitions, and enhancing infrastructure.

A

Strategic Risk

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16
Q

This is the foreign exchange rate risk associated with the time delay between entering into a contract and settling it. The greater the time differential between the entrance and settlement of the contract, the higher the risk, because there is more time for the two exchange rates to fluctuate.

A

Transaction Risk

17
Q

This type of risk control can help prevent what type of risk?

By establishing a credit monitoring system by with corporate customers can be evaluated. This system should also incorporate assigned exposure limits for each customer. It is important that these exposure limits are monitored over multiple settlement dates.

A

Credit ( Exposure) Risk

18
Q

This is a measurement of the maximum potential loss to a lender if the borrower defaults on payment. It is a calculated risk to doing business as a bank.

A

Credit exposure

19
Q

This type of risk control can help mitigate what type of risk?

Since any disruption in ACH processing can imperil accurate and timely processing of ACH entries, all ACH participants should review their operations and develop plans for reducing unacceptable risks. contingency plans should be prepared and tested for each type of potential failure.

A

Operational Risk

20
Q

This type of risk control can help mitigate what type of risk?

Participants in the ACH payment system can reduce this risk by increasing the likelihood that any attempts will be detected promptly. Some of the tools used to combat this include sound personnel practices, good physical security for the computer, communications and operations areas, effective data security, and rigorous control of all changes.

A

Fraud Risk

21
Q

This type of risk control can help mitigate what type of risk?

This risk is primarily associated with institutions that handle high dollar activity relative to their capital. This is addressed for financial institutions and payments system operators in the Federal Reserve Board’s Payment System Risk Policy. For the ACH Network, this could include the Federal Reserve and the private sector ACH Operator, Electronic Payments Network (EPN).

A

Systemic Risk

22
Q

A total amount of money or assets that a business has available to invest or use in its operations. This can include money raised from investors, loans, and profits that the business has earned.

A

Capital

23
Q

Refers to the portion of a company’s value that is owned by its shareholders. It represents the residual value of a company’s assets after all of its liabilities have been paid off.

A

Equity

24
Q

What criteria should credit limits for ACH Origination be based upon?

A
  • ODFI’s need to consider the originator’s credit rating.
  • ODFI could require originator to prefund its account.
  • ODFI should consider the originator’s transaction volume.
25
Q

What security issues are particular to DFI relationships with Third-Party Service Provider?

A
  • Multi-Factor and Multi Channel authentication.
  • Restrict the type of transactions that can be initiated.
26
Q

What are some sources of Operational Risk?

A
  • Hardware & Software Failure
  • Telecommunications & Power Failure
27
Q

What are the five types of risk inherent to the ACH Network?

A
  1. Credit Risk
  2. Operational Risk
  3. Fraud Risk
  4. Compliance Risk
  5. Systemic Risk
28
Q

What elements should be included for a contingency plan for the ODFI?

A
  • Alternate modes of operation or operating sites.
  • Contact info. for people who will set up the alternate site
  • Plan for how communication will be established at new site.
  • Plans for recovering work in progress at the time of the disaster.
29
Q

Same day ACH credit entries from the first or second processing window must b available for withdrawal at what time?

A

Either 1:30PM or 5PM RDFI Local time on settlement date.

30
Q

Same day credit entries received in the third same day processing window must b available for withdrawal at what time?

A

No later than the completion of the RDFI’s processing for the settlement date.

31
Q

Federal banking regulators require audit procedures and the Nacha Operating Rules establish ACH rules compliance audit requirement for?

A

Participating depository financial institutions, Third Party Service Providers, and Third Party Senders.

32
Q

This type of risk control can help mitigate what type of risk?

By requiring prefunding by Originators; using due diligence in determining the creditworthiness of originators; using care in determining exposure limits; and monitoring transactions.

A

Credit Risk

33
Q

This type of risk control can help mitigate what type of risk?

When financial institutions adhere to the Nacha Operating Rules and stay up to date with changes.

A

Compliance Risk 🌼

34
Q

What physical security issues should be considered in an audit of ACH Operations?

A
  • ACH Operations
  • Computer Operations
  • Telecommunications

AAP Exam Study Cards (45 decks)

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