Banking Risk Management Quiz

What is the primary goal of risk management in banking?

• Maximizing profits

• Minimizing operational costs

• Ensuring compliance with internal policies

• Identifying, assessing, and mitigating financial risks

Which of the following is NOT a typical type of financial risk?

• Credit risk

• Market risk

• Legal risk

• Operational risk

Credit risk refers to:

• The risk of loss due to market fluctuations

• The risk of loss due to borrower’s failure to repay

• The risk of system failure in financial institutions

• The risk of a bank running out of cash

What is the Basel Committee on Banking Supervision known for?

• Regulating the foreign exchange market

• Creating global standards for banking regulation

• Auditing national banks

• Monitoring inflation levels

According to Basel norms, Tier 1 capital includes:

• Subordinated debt

• Retained earnings and common equity

• Revaluation reserves

• Investment income

Market risk is primarily caused by:

• Mismanagement of staff

• Changes in political regulations

• Changes in market prices such as interest rates or equity prices

• Customer dissatisfaction

Operational risk arises from:

• Fluctuating exchange rates

• Failure in internal processes, people, or systems

• Increasing competition in the market

• External economic changes

The Capital Adequacy Ratio (CAR) is calculated as:

• (Capital + Reserves) / Total Assets

• Capital / Risk Weighted Assets

• Net Profit / Total Assets

• Reserves / Total Deposits

Stress testing in risk management is used to:

• Reduce interest rates for risky loans

• Evaluate financial performance under normal conditions

• Determine staff stress levels

• Assess the resilience of institutions under extreme but plausible scenarios

Liquidity risk is the risk that a bank:

• Does not have enough equity capital

• Is not profitable over a fiscal year

• Cannot meet its short-term financial obligations

• Cannot control its market exposure