Risk Management

Question 1

What is liquidity risk?

Answer 1

The risk that a company will not be able to meet its short-term financial obligations due to an imbalance between cash inflows and outflows.

Question 2

True or False: Liquidity risk only affects financial institutions.

Answer 2

False

Question 3

Fill in the blank: The main measure of liquidity risk is the __________ ratio.

Answer 3

current

Question 4

What is interest rate risk?

Answer 4

The risk that changes in interest rates will negatively affect a company’s financial condition.

Question 5

Multiple Choice: Which of the following is a tool used for managing liquidity risk? A) Interest rate swaps B) Cash flow forecasting C) Credit default swaps

Answer 5

B) Cash flow forecasting

Question 6

What does the term ‘stress testing’ refer to in risk management?

Answer 6

A simulation technique used to evaluate how a financial institution would perform under extreme market conditions.

Question 7

True or False: Interest rate risk can only be managed through hedging strategies.

Answer 7

False

Question 8

What is the purpose of performance reporting in risk management?

Answer 8

To provide stakeholders with information about the effectiveness of risk management strategies and the overall risk profile of the organization.

Question 9

Fill in the blank: The __________ method is commonly used to measure interest rate risk.

Answer 9

duration

Question 10

What is a liquidity crisis?

Answer 10

A situation where an entity is unable to meet its short-term financial obligations due to a lack of cash or liquid assets.

Question 11

Multiple Choice: Which of the following best describes a liquidity buffer? A) A reserve of cash and liquid assets B) An interest rate derivative C) A credit line

Answer 11

A) A reserve of cash and liquid assets

Question 12

What is the primary goal of liquidity risk management?

Answer 12

To ensure that an organization can meet its short-term financial obligations as they come due.

Question 13

True or False: Performance reporting is only relevant to the finance department.

Answer 13

False

Question 14

Fill in the blank: The __________ gap analysis is a tool used to assess interest rate risk.

Answer 14

maturity

Question 15

What does the term ‘gap analysis’ refer to?

Answer 15

A method for assessing the difference between the amount of assets and liabilities that are sensitive to interest rate changes.

Question 16

Multiple Choice: Which of the following is NOT a liquidity risk management strategy? A) Diversifying funding sources B) Maintaining a high level of debt C) Establishing contingency funding plans

Answer 16

B) Maintaining a high level of debt

Question 17

What is the role of the Asset-Liability Committee (ALCO) in risk management?

Answer 17

To oversee the management of liquidity and interest rate risk within an organization.

Question 18

True or False: Interest rate risk only affects fixed-income securities.

Answer 18

False

Question 19

Fill in the blank: A __________ report summarizes the results of risk assessments and management activities.

Answer 19

performance

Question 20

What is the difference between systematic and unsystematic risk?

Answer 20

Systematic risk affects the entire market, while unsystematic risk is specific to a particular company or industry.

Question 21

Multiple Choice: Which of the following is a characteristic of liquidity risk? A) It is predictable B) It can be managed with insurance C) It can arise from market fluctuations

Answer 21

C) It can arise from market fluctuations

Question 22

What is the purpose of a liquidity risk management framework?

Answer 22

To establish policies and procedures for identifying, measuring, monitoring, and controlling liquidity risk.

Question 23

True or False: Effective interest rate risk management can enhance a company’s profitability.

Answer 23

True