WorksheetsPost Midterm Risk Exam 2023
Total questions: 60
Worksheet time: 5mins
Why we should manage operational risks? Please choose 3 answers *
Minimise operational losses
Achieve business objectives
Better business decision
Common industry practice
Reduce tax
Please select the correct examples of the causal factor contributing to operational risk
Process: Inabsence of dual control function (checker & maker process) for financing
System: Non-maintenance of ATM/CDM machine resulting to frequent breakdown.
External: Staff did not comply to internal policies and procedures
People: Non-comprehensive of SLA (Service Level Agreement) between Bank and vendor.
What is BCM?
Business Compliance Management
Business Contingency Management
Banking Continuity Management
Business Continuity Management
The following are the reasons why Bank requires BCM EXCEPT? *
To carry out the critical business functions at a minimal resources during disaster
Safeguard the Bank's customers and business partners
Protect the Bank’s image and reputation
Protect the banking industries
To understand operational risk, one should understand..
Operational process, corporate environment and the affecting factors
Operational process only
The affecting factors and regulations only
No need to understand others, it just needs to understand the operational risk
Which of the following risk statement is catagorized as operational risk..
PEOPLE RISK
SYSTEM RISK
PROCESS RISK
ALL THE STATMENTS
Based on market best practice, which method provides foundation and framework for linking and integrating Operational risk to enterprise Risk Management..
ISO9001
ISO31000
ISO37000
ISO26000
Which one of the following statements is TRUE..
To achieve goal setting, organization should define their goal achievement
To set the strategy, organization should identify the risks
To define the risks, organization should define the opportunity
During setting up the strategy, organization should be focused on the opportunity exploitation, instead of risks identification
In the SWOT analysis, Strengths and Weaknesses are what?
External Factors
Poor Planning
Internal Factors
Good Management
What is the purpose of performing a SWOT Analysis?
Gives the management team a broader view on the potential opportunity
Evaluates whether the business venture is a good idea.
Identifies internal and external factors that may affect the business future performance.
Access an organization’s performance
Typically, the interest rate on corporate bonds will be ________ the more restrictions are placed on management through restrictive covenants, because ________.
higher; corporate earnings will be limited by the restrictions
higher; the bonds will be considered safer by bondholders
lower; the bonds will be considered safer by buyers
lower; corporate earnings will be higher with more restrictions in place
A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor's valuation of this stock if she expects it to be selling for $30 in one year and requires a 15 percent return on equity investments?
$30.24
$26.30
$26.09
$27.74
Suppose the average industry PE ratio for auto parts retailers is 20. What is the current price of Auto Zone stock if the retailer's earnings per share is projected to be $1.85?
$21.85
$9.25
$10.81
$37
If the 2005 inflation rate in Britain is 6 percent, and the inflation rate in the U.S. is 4 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the British pound in terms of U.S. dollars will
rise by 10 percent.
rise by 2 percent.
fall by 10 percent.
fall by 2 percent.
What type of risk focuses upon mismatched asset and liability maturities and durations?
Liquidity risk
Interest rate risk
Credit risk
Foreign exchange rate risk
Off-balance sheet risk
What type of risk focuses upon mismatched currency positions?
Liquidity risk
Interest rate risk
Credit risk
Foreign exchange rate risk
Off-balance sheet risk
The risk that an investor will be forced to place earnings from a loan or security into a lower yielding investment is known as
liquidity risk
reinvestment risk
credit risk
foreign exchange risk
off-balance-sheet risk
An FI that finances a euro (€) loan with U.S. dollar ($) deposits is exposed to
technology risk
interest rate risk
credit risk
foreign exchange risk
off-balance-sheet risk
The risk that borrowers are unable to repay their loans on time is
credit risk
political risk
currency risk
interest rate risk
liquidity risk
The risk that many borrowers in a particular country fail to repay their loans as a result of a recession in that country relates to
credit risk
sovereign risk
currency risk
interest rate risk
liquidity risk
The risk that many borrowers in a particular country fail to repay their loans as a result of a recession in that country relates to
credit risk
sovereign risk
currency risk
interest rate risk
liquidity risk
The risk that many depositors withdraw their funds from an FI at once is
credit risk
sovereign risk
currency risk
interest rate risk
liquidity risk
The risk that a foreign government may devalue the currency relates to
credit risk
sovereign risk
foreign exchange risk
interest rate risk
liquidity risk
As commercial banks move from their traditional banking activities of deposit taking and lending and shift more of their activities to trading, they are more subject to
credit risk
market risk
foreign exchange risk
interest rate risk
liquidity risk
Instruments of Islamic finance enable risk-sharing and diversification through which individuals can mitigate their idiosyncratic risks.
True
False
Which of the following is a definition of Refinancing Risk?
The risk that the return on funds to be reinvested will be higher than the cost of funding
The risk that an interest rate falls and the maturity of assets is shorter than maturity of liabilities
The risk that the cost of reborrowing will be higher than return on investments
The risk that interest rates will not change and the maturity of assets is longer than liabilities
When does duration of an asset equals its maturity?
Never
When asset is a zero-coupon bond
When asset produces multiple cash flows but only during one year
When maturity of asset is more than one year but only one cash flow is received per year
Which of the following is a problem when estimating interest rate risk using repricing model?
Ignoring off-balance sheet items
Overaggregation
Ignoring runoffs effect
All answers are correct
In a hypothetical bucket value of assets is $100 and value of liabilities is $75. What is the effect of interest rates falling by 2% on banks' net interest income?
-$0.25
-$0.5
$0.5
$25
Specific market risk corresponds to the fraction of market risk associated with the volatility of positions or a portfolio that can be explained in terms of market factors, such as changes in the term structure of interest rates, changes in equity index prices, currency fluctuation, etc.
TRUE
FALSE
value at risk (VaR) is defined as that value which represents the maximum potential change in value of the total position, given a certain confidence level during a pre- determined period of time
TRUE
FALSE
What is the definition of risk in financial terms?
The guarantee of not losing any investment
The chance that an outcome or investment's actual gains will differ from an expected outcome or return
The possibility of gaining more than the expected outcome
The certainty of achieving the expected outcome
What are the two categories of investment risks affecting asset values?
Interest rate risk and political risk
Market risk and credit risk
Business risk and country risk
Systematic risk and unsystematic risk
What is the risk of losing an investment due to company or industry-specific hazard called?
Unsystematic risk
Market risk
Foreign-exchange risk
Credit risk
Which type of risk refers to the risk that a country won't be able to honor its financial commitments?
Foreign-exchange risk
Interest rate risk
Country risk
Political risk
Which type of risk refers to the risk that a country won't be able to honor its financial commitments?
Foreign-exchange risk
Interest rate risk
Country risk
Political risk
What is the risk that the cash from an investment won't be worth as much in the future due to inflation changing its purchasing power called?
Inflation risk
Systematic risk
Default risk
Sovereign risk
A derivative instrument that suggests a contract between two traders for purchase and delivery of assets at a specific time and future date; it is also traded on stock exchange.
forward
future
swap
Which of the following statements about stress testing are true?
I. Stress testing can complement VAR estimation in helping risk managers identify crucial vulnerabilities in a portfolio.
II. Stress testing allows users to include scenarios that did not occur in the lookback horizon of the VAR data but are nonetheless possible.
III. A drawback of stress testing is that it is highly subjective.
IV. The inclusion of a large number of scenarios helps management better understand the risk exposure of a portfolio.
I and II only
III and IV only
I, II, and III only
I, II, III, and IV
A large, international bank has a trading book whose size depends on the opportunities perceived by its traders. The market risk manager estimates the one-day VAR, at the 95% confidence level, to be USD 50 million. You are asked to evaluate how good a job the manager is doing in estimating the one-day VAR. Which of the following would be the most convincing evidence that the manager is doing a poor job, assuming that losses are identical and independently distributed (i.i.d.)?
Over the past 250 days, there are eight exceptions
Over the past 250 days, the largest loss is USD 500 million
Over the past 250 days, the mean loss is USD 60 million
Over the past 250 days, there are about 12.5 exceptions
When data is good, it is better to use
Parametric VaR
Historical VaR
None of above
Dynamic VaR is important because it allows
Dynamic hedging
To better follow market movements and their impact on risk
Computing VaR more efficiently
A risk matrix is
A 2D grid that helps us to visualise the severity of any risk
A List of risks and their strategies
A rating of each risk
None
On the digital matrix, likelihood is
how bad/severe the risk is.
how possible it is for the risk to happen.
the effect/consequence of the risk.
when the risk will happen.
Examples of cyber risk include
cybercrime
data breaches/leaks
power outages
All of the above
Risk can be calculated as:
Likelihood x Consequence
Severity x Consequence
Consequence + Likelihood
Uncertainty / Impact
is the successful retrieval of sensitive information by an individual, group, or software system.
Data incident
Data breach
Data attack
Virus
is broadly defined as intentionally accessing a computer without authorization or exceeding authorized access.
Cyberthreat
Data breach
Hacking
Virus
Which is the most important distinction between human traders and algorithmic trading?
Humans are better at interpreting Tweets.
Algorithms can make better predictions and without emotion.
Humans understand human factors better.
Algorithms can act quicker than humans.
Which are core components of all trading algorithms?
Obtaining the data
Evaluating the results
Predicting the trends
Making a trading decision
Which is an investment discipline in which investments (such as stocks) are evaluated based on their intrinsic qualities such as financial (income statement, balance sheet, and cash flow statement) or economic data about the underlying company.
Technical analysis
Fundamental analysis
Vertical analysis
Scenario analysis
A 20-day simple moving average is an example of what?
Technical indicator
Trading signal
Crossover strategy
Backtesting
Which is the process for measuring the overall performance of a trading strategy using historical prices.
Technical indicator
Trading signal
Crossover strategy
Backtesting
Which metric(s) focuses on downside risk?
Cumulative return
Downside deviation
Sharpe Ratio
Sortino Ratio
ISO _____ defines Risk as an effect of uncertainty on objectives.
21000
31000
47000
17000
Risk of intentional misstatement to the financial statements by an amount exceeding the tolerable error arising from misstatement or omission of amounts
Error Risk
Fraud Risk
Information and Information Processing Risk
Information for Decision-Making Risk
True
False
