Question 1

Operational risks usually refer to the risks:

a) That are internal to a firm.
b) Of counterparties failing to settle a transaction.
c) That a firm cannot operate due to a short-term lack of cash.

Question 2
Consider the following statements:
Statement 1: One of the objectives of risk management is to minimize total risk.
Statement 2: Separate strategic planning for each part of the enterprise is a key aspect of
taking an enterprise view of risk governance.
Which of the following is most likely?
a) Only Statement 1 is correct.
b) Only Statement 2 is correct.
c) Both statements are incorrect.

Question 3
An insurer promises to pay the insured a certain amount of money if a third party fails to
fulfill its obligation. This is most likely the definition of:
a) Surety bonds.
b) Fidelity bonds.
c) Indemnity bonds.

Question 4
If a firm has a 1-month 1% value at risk (VaR) of $100 million, it means it expects to lose:
a) $1 million in 1% of 1-month periods.
b) $100 million in 1% of 1-month periods.
c) $100 million or more in 1% of 1-month periods.

Question 5
Consider the following statements:
Statement 1: VaR can be defined as the maximum loss expected over a holding period a
certain percentage of the time.
Statement 2: It is easier for an investor to control risk than to control returns and risk-
adjusted returns.
Which of the following is most likely?
a) Only Statement 1 is correct.
b) Only Statement 2 is correct.
c) Both statements are incorrect.

Question 6
When a firm sets aside a reserve to cover potential losses, this can be referred to as:
 a) Risk transfer.
b) Self-insuring.
c) Risk diversification.

Question 7
Diversification is most likely a form of:
a) Risk acceptance.
b) Risk transfer.
c) Risk shifting.

Question 8
Risk budgeting in an enterprise:
a) Is the process that minimizes the risk an enterprise takes.
b) Establishes the risk tolerance of the enterprise in financial terms.
c) Allocates the risk appetite across the different activities of the enterprise.

Question 9
The process through which a risk management system is populated with risk exposures is
most likely known as:
a) Risk capture.
b) Risk identification.
c) Risk governance.

Question 10
Which element of a risk management framework provides the top-down process and
guidance to direct management activities when it comes to risk management?
a) Governance
b) Risk infrastructure
c) Policies and processes

Question 11
Which of the following least likely directly measures the risk of derivatives?
a) Gamma
b) Beta
c) Rho

Question 12
Which of the following is most likely a financial risk?
a) Liquidity risk
b) Herstatt risk
 c) Tax risk

Question 13
Consider the following statements:
Statement 1: The risk tolerance discussion is about the defining actions that management
should take to minimize losses.
Statement 2: Limiting the amount of money that can be spent on hedging strategies is a part
of risk budgeting.
Which of the following is most likely?
a) Only Statement 1 is correct.
b) Only Statement 2 is correct.
c) Both statements are incorrect.

Question 14
Which element of risk management forms the core component of the process?
a) Communication
b) Risk governance
c) Risk identification and measurement