36 Questions
What is the Basel Committee's definition of operational risk?
The risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events
Which of the following is NOT one of the categories of Operational Risk under BASEL II?
Money laundering
What is the risk of loss resulting from employee theft and embezzlement categorized as?
Internal Fraud
Which of the following is NOT one of the three major operational risks for a bank?
Natural disasters
According to the International Association of Insurance Supervisors, what is operational risk defined as?
The risk of adverse change in the value of capital resources resulting from operational events
Which category of Operational Risk under BASEL II includes damage to physical assets?
Damage to Physical Assets
What is the risk related to robbery, forgery, check kiting, and computer hacks categorized as?
External Fraud
What is the risk related to misreporting, employee theft, and embezzlement categorized as?
Internal Fraud
'Execution, delivery, and process management' is a part of which category of Operational Risk under BASEL II?
'Execution, delivery, and process management' falls under Business Disruptions and Systems Failure.
'Organized crime' is associated with which type of operational risk?
'Organized crime' is associated with external fraud.
What type of risk is associated with an employee taking unauthorized actions resulting in large losses?
Rogue trader risk
Which organization faced a cyberattack affecting 143 million people in the United States in 2017?
Equifax
What kind of information was obtained by hackers during the Equifax cyberattack?
Social security numbers and driver license numbers
What defenses have been developed against cyber threats?
User account controls, cryptography, intruder detection software, and firewalls
What led to a fine of about USD 2.8 billion for Volkswagen?
Failure to comply with U.S. emissions standards by cheating during emissions testing
What is the risk associated with non-compliance to cheat and assisting clients with tax evasion?
Compliance Risk
What did the hackers plan to embezzle from the Central Bank of Bangladesh through a series of international transactions?
USD 1 billion
What was one of the most notorious incidents involving rogue trading activities?
The Barings Bank trader Nick Leeson case
What organization incurred fines for failing to act in accordance with industry laws and regulations?
Volkswagen
What kind of risk involves activities such as money laundering and terrorism financing?
Compliance Risk
What is credit risk?
The risk of loss from the failure to make required payments on loans due to an entity
What is credit default risk?
The risk of loss when the borrower is unable to pay the loan obligation in full or is 90 days past the due date
What is concentration risk?
The risk arising from exposure to a single counterparty or sector, lacking diversification
Which type of risk is associated with a country’s political instability and macroeconomic performance?
Country risk
What is the probability that the lender will not receive the principal and interest payments of a debt required to service the debt extended to a borrower known as?
Credit risk
What type of credit risk arises when a corporate or individual borrower fails to meet their debt obligations?
Credit risk
What is the main focus of qualitative credit risk analysis?
Assessing the obligor's willingness to pay
Which of the following is NOT a factor used to calculate economic capital for credit risk?
Level of Debt Obligation
What aspect does the 'character' attribute assess in credit risk analysis?
Willingness to repay the loan
In credit risk analysis, what does 'collateral' refer to?
Real cover for the loan
What does 'Capacity' assess in credit risk analysis?
Ability to generate enough money to repay the loan
Which type of credit analysis focuses more on asset quality and earnings capacity?
Financial Institution Credit Analysis
What is the likelihood that a borrower will default on their loan obligations referred to as in credit risk analysis?
Probability of Default (POD)
What is used to evaluate the amount of loss exposure that a lender is exposed to at any particular time in credit risk analysis?
Exposure at Default (EAD)
What kind of information does quantitative credit risk analysis involve consideration of?
Past, current, and forecasted financial statements
What are the limitations of financial statements in credit risk analysis?
They are merely historical in scope and subject to diverse interpretations
Test your understanding of Unit 05 – Operational and Liquidity Risks in Financial Risk Management with this quiz. The quiz covers concepts taught by Dr V. Harshitha Moulya, Assistant Professor at Christ (deemed to be University), Bangalore, for the class of MBA (V trimester) 2023.
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