BFM Module B

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EXAMS
SAMPLE QUESTION S FOR
CAIIB
BANK FINANCIAL MANAGEMENT
(BFM)
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liability for any loss or harm arising from actions done based solely on the contents.
These brief comments are the result of numerous people's work. We want to appreciate
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INDEX
S No. Topic Page No
1 General Information 3
2 Syllabus 6
3 Important Question 8
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CAIIB GENERAL INFORMATION
S NO. Mandatory Paper Elective Papers: Candidates may select

any option they like.
1 Advanced Bank Human Resources Management
Management
2 Advanced Business & Risk Management

Financial Management
3 Banking Regulations and Information Technology & Digital Banking

Business Laws
4 Bank Financial Management Central Banking
5 Rural Banking
 Only current bank employees who have passed the JAIIB exam are eligible to
take the CAIIB exam.
 Exams for the CAIIB are only offered online.
 Normally, the exam is held twice a year on Sundays in May/June and
November/December.
 The exam will take two
o hours to complete.
Examination Pattern:
 There will be 100 objective

objective-type multiple-choice Question s on the Question
paper, worth 100 marks. Some of the Question s will be based on case studies or
case lets. The quantity of Question s required for a subject,
ject, however, may be
changed by the Institute.
 In certain CAIIB subjects, there might be numerical Question s for which there
are no available Answer
Answers. The candidate must key in the Answer to these
Question s, which will not follow the MCQ format.
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 Negative points won't be awarded for incorrect responses.
 Exam Question s will include the following:
a. Knowledge evaluation
b. Knowledge of concepts
c. Logical and analytical explanation
d. Solving problems
e. Examining case
Passing Requirements:
 50 out of 100 is the minimum score required to pass the subject.
 Candidates will also be considered to have finished if they receive at least 45 marks
in each subject and an overall score of 50% in all exam subjects in a single attempt.
The Test.
 Until the allotted time for passing the test expires, candidates may keep their credits
for the subjects they have successfully attempted.
 Note: A candidate may take the CAIIB exam five times, but only if they register for
the exam and complete it within three years of the date of registration, whichever
comes first. It is not necessary for these five attempts to occur one after the other.
 The "Class of Pass" requirements:
 First Class: Pass all subjects in the FIRST PHYSICAL ATTEMPT with an aggregate
aggregat score
of 60% or higher.
 First Class with Distinction: 60% or higher in each catego
category
ry overall and 70% or higher
in every participant in the FIRST ACTUAL ATTEMPT.
 Only "Pass Class" will be awarded to candidates who have been granted exemption
in one or more subjects.
 Deadline for Guidelines and Significant Developments Ahead of Exams:

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 The Institute will only take into consideration instructions/guidelines issued by the
regulator(s) and significant developments in banking and finance up to December 31
for the purposee of including them in the Question papers for the exams that will be
administered from February to July of each calendar year.
 Important developments in banking and finance up to June 30th, as well as

instructions/guidelines issued by the regulator(s), will
will only be taken into
consideration for inclusion in the Question papers for the exams that the Institute
will administer from August to January of each year.
➤ Exam Fees
An overview Fee
First attempt fee
fe 5000
Second attempt fefee 1300
Third attempt fee 1300
Fourth attempt fee 1300
Fifth attempt fee 1300
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SYLLABUS
The booklet contains information on the suggested syllabus, which is indicative. Though
Questions can address any pertinent topic under the subject, candidates must study all topics
falling within the purview of the subject in Question due to the professional nature of
examinations.
Even though those topics may not have been explicitl

explicitlyy covered in the syllabus, candidates
taking the exam should especially get ready to respond to Questionss about current events that
may arise under the various subjects covered in the exam.
MODULE B: RISK MANAGEMENT

 Risk and Basic Risk Management Framework
o Foreign What is Risk?, Linkages among Risk, Capital and Return; Why Risk
Management?; Basic Risk Management Framework
 Risks in Banking Business

o Risk Identification in Banking Business; The Banking Book; The Trading Book; Off-
Off
Balance Sheet Exposures; Banking Risks – Definitions
 Risk Regulations in Banking Industry
o Regulation of Banking Industries – Necessities and Goals; The Need for Risk
Risk-based
Regulation in a Changed World Environment; Basel I: The Basel Capital Accord; 1996
Amendment to Include Market Risk; Basel I Accord – Need and Goals; Basel I
Accord; Towards Basel III; Capital Charge for Credit Risk; Credit Risk Mitigation;
Capital Charge for Market Risk; Capital Charge for Operational Risk; Pillar 2 –
Supervisory Review Process; Pillar 3 – Market Discipline; Capital Conservation
Buffer; Leverage Ratio; Countercyclical Capital Buffer; Systemically Important
Financial Institutions (SIFIs); Risk Based Supervision (RBS)
 Market Risk
o Market Risk – Concept; Market Risk in Banks; Market Risk Management Framework;
mework;
Organisation Structure; Risk Identification; Risk Measurement; Risk Monitoring
and Control; Risk Reporting; Managing Trading Liquidity; Risk Mitigation
 Credit Risk
o General; Credit Risk Management Framework; Organisation Structure; Risk
Identification; Risk Measurement; Credit Risk Control and Monitoring; Credit Risk
Policies and Guidelines at Transaction Level; Credit Control and Monitoring at
Portfolio Level; Active Credit Portfolio Management; Controlling Credit Risk
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through Loan Review Mechanism (LRM); Credit Risk Mitigation; Securitisation;

Credit Derivatives (CDs)
 Operational Risk and Integrated Risk Management

o Operational Risk – General; Operational Risk – Classification; Operational Risk
Classification by Event Type – Definitions; Operational Risk Management Practices;
Management Overview and Organisational Structure; Processes and Framework;
Risk Monitoring and Control Practices; Operational Risk Qualification; Operational
Risk Mitigation; Scenario Analysis; Integrated Risk Management; The Necessity
ecessity of
Integrated Risk Management; Integrated Risk Management – Challenges;
Integrated Risk Management – Approach
 Liquidity Risk Management

o Liquidity Risk Management – Need & Importance; Potential Liquidity Risk Drivers;
Types of Liquidity Risk; Principles for Sound Liquidity Risk Management;
Governance of Liquidity Risk Management; Liquidity Risk Management Policy,
Strategies and Practices; Management of Liquidity Risk; Ratios in respect of
Liquidity Risk Management; Stress Testing; Contingency Funding ng Plan; Overseas
Operations of the Indian Banks’ Branches and Subsidiaries and Branches of Foreign
Banks in India; Broad Norms in Respect Of Liquidity Management; Liquidity Across
Currencies; Management Information System; Reporting to the Reserve Bank of
India; Internal Controls
 Basel II Framework on Liquidity Standards

o Liquidity Coverage Ratio; Liquidity Risk Monitoring Tools; Net Stable Funding Ratio
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CHAPTER 11-: RISK AND BASIC RISK MANAGEMENT FRAMEWORK

1) What is the definition of risk based on the given
information? Answer:: d) Uncertainties associated with processes
a) Deviation from plans or expectations 6) What is the commonality among the factors
b) Unpredictability of the future mentioned in reaching the place of the interview?
c) Uncertainties associated with processes a) They are all predictable
d) External factors influencing processes b) They are all associated with the process
c) They are all unrelated
Answer:: a) Deviation from plans or expectations d) They are all uncontrollable
2) What contributes
butes to the unpredictability? Answer:: b) They are all associated with the process
a) Lack of planning
b) External factors 7) What may happen if everything goes well with the
c) Both a and b factors
ors mentioned in reaching the interview?
d) Neither a nor b a) There will be no uncertainties
b) There wIll be a trouble-free
free drive
Answer: c) Both a and b c) One may reach well in time
d) Both b and c
3) In the example of attending a job interview, which
of the following is NOT a step to reach the Answer: d) Both b and c
destination in time?
a) Getting ready well in time 8) What is the key factor contributing to the risk of
b) Arranging a transport reaching late for the interview?
c) Taking a leisurely stroll a) Traffic disorder
d) Traveling the distance to the place of the b) Uncertainties associated with the factors
interview c) Vehicle breakdown
d) Smooth traffic flow
Answer: c) Taking a leisurely stroll
Answer:: b) Uncertainties associated with the factors
4) What causes the unpredictability of the future in
the context of attending a jobb interview? 9) Which of the following is NOT mentioned as a
a) Lack of preparation potential uncertainty in reaching
ching the interview?
b) Uncertainties associated with processes a) Getting ready early or being delayed
c) External factors influencing processes b) Transport availability
c) Smooth traffic flow
d) All of the above d) Vehicle breakdown
Answer: d) All of the above Answer: c) Smooth traffic flow
5) What is the primary reason for the deviation

observed in achieving planned objectives?
ives?
a) Lack of motivation
b) Unpredictability of the future
c) External factors
d) Uncertainties associated with processes
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10) How does the passage describe the impact of 15) What is the mathematical
tical representation of net
uncertainties associated with the factors
ors in reaching cash flow in terms of profit or loss?
the interview on time? a) Net Cash flow = Cash inflow - Cash Outflow
a) They always result in failure (Profit)
b) They never hurt the individual b) Net Cash flow = Cash Outflow - Cash Inflow (Loss)
c) They may lead to failure or reaching in time c) Net Cash flow = Cash inflow + Cash Outflow
d) They only hurt when everything goes well (Profit)
d) Net Cash flow = Cash Inflow - Cash Outflow (Loss)
Answer:: c) They may lead to failure or reaching in
time Answer:: b) Net Cash flow = Cash Outflow - Cash
Inflow (Loss)
11) How are the factors mentioned in the passage
related to risk? 16) What is the impact of uncertainties in cash
a) They are risk outcomes inflows and outflows on net cash flow or profits?
b) They are risk elements or contributors a) They have no effect
c) They are risk definitions b) They create certainties
d) They are risk uncertainties c) They create uncertainties
rtainties in net cash flow or
profits
Answer:: b) They are risk elements or contributors d) They guarantee profitability
12) How does the passage define risk? Answer:: c) They create uncertainties in net cash
a) Certainties resulting in adverse outcome flow or profits
b) Uncertainties resulting in positive outcome
c) Uncertainties resulting in adverse outcome 17) What are the risk elements in the context of
d) Adversities resulting in planned objectives trade business?
a) Cash inflows
Answer:: c) Uncertainties resulting in adver
adverse b) Cash outflows
outcome c) Variations in saless flow and unit prices
13) What is the focus of Financial Risks? d) Net cash flow

a) Certainties in profitability
b) Adverse variation of profitability or losses Answer:: c) Variations in sales flow and unit prices
c) Planned objectives
d) Expectations 18) In the example provided for trade business,
what creates uncertainty in cash inflow?
Answer:: b) Adverse variation of profitability or a) Stable sales flow
losses b) Consistent unit prices
c) Variation in sales flow
w and unit prices
14) How is the profit or loss
oss of a business d) Fixed unit prices
determined?
a) By the total cash inflow Answer:: c) Variation in sales flow and unit prices
b) By the total cash outflow
c) By the net result of all cash inflows and outflows
d) By the planned objective
Answer:: c) By the net result of all cash inflows and

outflows
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19) How does the passage illustrate uncertainties in 24) How do uncertainties in both cash outflows and
cash inflow using the example of the trade business? inflows impact net cash flow or profits?
a) Through the volume of goods sold a) They have no impact
b) Through the unit price of goods b) They always result in losses
c) Through variations in sales flow and unit prices c) They create certainty in profits
d) Through consistent inflow d) They result in uncertainties in net cash flow or
profits
Answer:: c) Through variations in sales flow and unit
prices Answer:: d) They result in uncertainties in net cash
flow or profits
20) What is the impact of the example on cash
inflow for the trade business in the given scena
scenario? 25) How can uncertainties in net cash flow or profits
a) Increased certainty affect the business?
b) Decreased uncertainty a) They have no effect
c) Stability in cash inflow b) They only affect profits unfavorably
d) Uncertainty in cash inflow c) They can affect profits favorably or unfavorably
d) They guarantee profitability
Answer: d) Uncertainty in cash inflow
Answer:: c) They can affect profits favorably or
21) What contributes to uncertainty in cash unfavorably
outflow?
a) Stable purchase prices 26) What factors can contribute to higher profits?
b) Consistent transport costs a) Higher sales
les price and volume than expected
c) Uncertainty in purchase price and transport cost b) Higher purchase price and expenses than
d) Fixed administrative costs expected
c) Stable sales volume and price
Answer:: c) Uncertainty in purchase price and d) Consistent purchase prices and expenses
transport cost
Answer:: a) Higher sales price and volume than
22) In the example provided, what creates expected
uncertainty in cash outflow for the business?
a) Stable unit prices 27) In Example 2, what kind of commodity
commo trading is
b) Fixed administrative costs considered where demand fluctuates wildly and
c) Variation in purchase price and transport cost prices change substantially over a short period?
d) Consistent volume of goods purchased
a) Stable commodity trading
Answer:: c) Variation in purchase price and transport b) Commodity trading with fixed prices
cost c) Commodity trading with unpredictable demand
and price changes
23) What is included in the cash outflow for the d) Commodity trading with guaranteed profits
business?
a) Sale of goods Answer:: c) Commodity trading with unpredictable
b) Purchase of goods and transport cost demand and price changes
c) Administrative costs
d) Both b and c
Answer: d) Both b and c

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28) What can result in very high profits in 33) What does lower risk imply in terms of net cash
commodity trading? flow variability?
a) Stable demand and prices a) Higher variability in net cash flow
b) Fluctuating demand and stable prices b) Lower variability in net cash flow with lower
c) Fluctuating demand and prices upside and downside potential
d) Fixed demand and prices c) Higher potential for profitss and losses
Answer:: c) Fluctuating demand and prices d) No potential for profits and losses
29) What can result in huge losses in commodity Answer:: b) Lower variability in net cash flow with
trading? lower upside and downside potential
a) Stable demand and prices
b) Fluctuating demand and stable prices 34) What does the passage suggest about a risk risk-free
c) Fluctuating demand and prices or zero-risk investment?
d) Fixed demand and prices a) It has high variability in net cash
h flow
b) It has low variability in net cash flow with high
Answer:: c) Fluctuating demand and prices potential for profits
c) It has low variability in net cash flow with low
30) How does the passage describe the potential potential for profits and losses
outcomes for a trader in commodity trading with
unpredictable demand and price changes? d) It guarantees profits and prevents losses
a) Guaranteed profits
b) Very high profits or huge losses Answer:: c) It has low variability in net cash
c flow with
c) Stable profits low potential for profits and losses
d) No impact on profits
35) In the example of a retired person's investment
Answer:: b) Very high profits or huge losses in RBI bonds, what is the outcome after the maturity
period?
31) How does variability in net cash flow impact the
outcomes for a business? a) Higher risk
a) Variability has no impact on profits or losses b) Lower risk
b) Higher variability may result in higher
er profits or c) No risk
higher losses d) Adverse situations
c) Lower variability always results in higher profits
d) Lower variability always results in higher losses Answer: c) No risk
Answer:: b) Higher variability may result in higher 36) Why is the investment in RBI bonds considered
profits or higher losses risk-free or zero-risk?
32) What does a business with higher risk iimply? a) It has high variability in net cash flow
a) Lower variability in net cash flow b) It has low variability in net cash flow with high
b) Higher variability in net cash flow with lower potential for profits
upside and downside potential c) It has low variability in net cash flow with no
c) Lower potential for profits and losses uncertainty
d) No potential for profits and losses d) It guarantees profits and prevents losses
Answer:: b) Higher variability in net cash flow with

wit Answer:: c) It has low variability in net cash flow with
lower upside and downside potential no uncertainty
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37) What does zero-risk

risk imply in terms of variation b) Risk is high when net cash flow has high variability
in net cash flow? c) Risk is low when net cash flow has low variability
d) Risk is low when net cash flow has high variability
a) High variation
b) No variation Answer:: b) Risk is high when net cash flow has high
c) Low variation variability
d) Uncertain variation
42) What characterizes a business with higher risk?
Answer: b) No variation a) Low variability in net cash flow
b) Wide variations in net cash flow
38) How does the return on a zero-risk
risk investment c) Guaranteed profits
compare to other opportunities in the market? d) Low capital requirements
a) It is guaranteed to be high Answer:: b) Wide variations in net cash flow

b) It is guaranteed to be low
c) It is uncertain 43) How does higher variability
riability in net cash flow
d) It is the same as other opportunities affect profit potential and loss possibilities in a
business?
Answer: b) It is guaranteed to be low a) Profit potential and loss possibilities are lower
b) Profit potential and loss possibilities are higher
39) What is the linkage between risk and capital in c) Profit potential is lower, but loss possibilities are
simple terms? higher
a) Minimum capital should be such that it d) Profit potential is higher, but loss possibilities are
guarantees maximum loss lower
b) Minimum capital should be able to meet the
maximum loss to avoid bankruptcy Answer:: b) Profit potential and loss possibilities are
c) Minimum capitall should be the same for all higher
businesses
d) Minimum capital should be based on potential 44) What characterizes a business with low risk?
profits a) High variability in net cash flow
b) Low variability in net cash flow
Answer:: b) Minimum capital should be able to meet c) Guaranteed profits
the maximum loss to avoid bankruptcy d) High capital requirements
40) Why is minimum capital required for a business Answer:: b) Low variability in net cash flow
linked to the abilityy to meet the maximum loss?
45) How does lower variability in net cash flow
a) To maximize profits impact profit potential and loss possibilities in a
b) To minimize losses business with low risk?
c) To avoid bankruptcy
d) To ensure a steady cash flow a) Profit potential and loss possibilities
lities are lower
b) Profit potential and loss possibilities are higher
Answer: c) To avoid bankruptcy c) Profit potential is lower, but loss possibilities are
higher
41) How is risk defined in terms of net cash flow d) Profit potential is higher, but loss possibilities are
variability in a business? lower
Answer:: a) Profit potential and loss possibilities are
a) Risk is high when net cash flow has low variability lower
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46) What is the relationship between risk and capital c) Return is directly proportional to risks
requirement? d) Return is unrelated to risks but proportional to
capital
a) Low risk requires low capital, high risk requires
high capital Answer:: c) Return is directly proportional to risks
b) Low risk requires high capital, high risk requires
low capital 50) What factor determines the return expected
c) There is no relationship between risk and capital from a business?
requirement a) The total initial investment
d) Low risk always requires low capital b) The risks associated with the business
c) The capital requirement
Answer:: a) Low risk requires low capital, high risk d) The duration of the investment
requires high capital
Answer:: b) The risks associated with the business
47) What is the linkage between risk, return, and
capital? 51) What is the total investment amo
amount for both
Investment 1 and Investment 2 over the five-year
five
a) Return is unrelated to risk and capital period?
b) Return is inversely proportional
roportional to risk a) 30
c) Return is directly proportional to risk and capital b) 60
d) Return is unrelated to risk but proportional to c) 90
capital d) 120
Answer:: c) Return is directly proportional to risk and Answer: b) 60

capital
52) What is the annual return percentage for both
48) In the example provided, what does the total Investment 1 and Investment 2?
initial investment amount to for both investment a) 6%
opportunities? b) 12%
c) 18%
a) 5000 Rs. d) 24%
b) 50000 Rs. Answer: b) 12%
c) 25000 Rs. 53) What is the totall return percentage for both
Investment 1 and Investment 2 over the five-year
five
d) 100000 Rs. period?
a) 30%
Answer: b) 50000 Rs. b) 45%
c) 60%
49) How does the passage describe the relationship d) 75%
between return and the risks associated with a
business? Answer: c) 60%
a) Return is unrelated to risks
b) Return is inversely proportional to risks

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54) Why might one prefer Investment 1 over 59) What does the term "Risk Adjusted Return on
Investment 2? Investment" refer to?
a) Investment 1 has a higher total return a) Total return on investment adjusted for inflation
b) Investment 2 has a steady stream of cash flow b) Return on investment adjusted for risks
c) Investment 1 has a steady stream of cash flow c) Total investment amount adjusted for risks
d) Both investments are equal d) Risk premium adjusted for total return
Answer:: c) Investment 1 has a steady stream of cash Answer:: b) Return on investment adjusted for risks
flow
60) How does the risk premium vary with the level
55) Despite having equal total returns, what factor of risk in an investment?
makes Investment 1 more appealing from the a) It remains constant
return-on-investment perspective? b) It decreases with higher risk
a) Higher annual return percentage c) It increases with higher risk
b) Lower annual return percentage d) It has no correlation with the level of risk
c) Steady stream of cash flow
d) Higher total investment Answer:: c) It increases with higher risk
Answer: c) Steady stream of cash flow 61) What is the key factor for investment decisions
of investors?
56) What is the risk premium? a) Total return on investment
a) The total return on investment b) Risk premium
b) The additional return on investment due to higher c) Risk-Adjusted
Adjusted Return on Capital (RAROC)
risk d) Total investment amount
c) The steady stream of cash flow
d) The total investment amount Answer: c) Risk-Adjusted
Adjusted Return on Capital (RAROC)
Answer:: b) The additional return on investment due 62) What does seeking enhancement
hancement in RAROC
to higher risk mean for managing a business?
a) Lowering risks
57) How is the risk premium calculated? b) Increasing capital requirements
a) By subtracting
ting the total investment amount c) Maximizing total return
b) By subtracting the total return on investment d) Maximizing risk-adjusted
adjusted return
c) By adding the total investment amount
d) By adding the total return on investment Answer: d) Maximizing risk-adjusted
adjusted return
Answer:: b) By subtracting the total return on 63) How does the passage describe the relationship
relations
investment between RAROC and the reward to
investors/shareholders?
58) What does the passage suggest
est is the proper a) There is no correlation
basis for comparing investments when risks differ? b) Higher RAROC results in higher reward
a) Total return on investment c) Higher RAROC results in lower reward
b) The risk premium d) RAROC has no impact on investor rewards
c) Returns net of risk
d) Total investment amount Answer:: b) Higher RAROC results in higher reward
re
Answer: c) Returns net of risk

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64) What is the linkage between risks, return, and Answer:: c) Correlation with uncertainties of
capital? business factors
a) It is arbitrary and depends on external factors 69) Why does the risk exposure of a business need
b) It is constant and does not change to be managed?
c) It is inversely proportional
d) It is directly proportional a) To increase potential losses
b) To minimize uncertainties
Answer: d) It is directly proportional c) To maximize potential bankruptcy
d) To limit potential losses in adverse situations
65) How does the capital requirement in a business
model relate to the level of risks and return Answer:: d) To limit potential losses in adverse
expectations? situations
a) It decreases with higher risks
b) It is independent of risks and return expectations 70) What is the ultimate goal of managing the risk
c) It increases with higher risks exposure of a business?
d) It remains constant
nstant regardless of risks and return a) To increase potential losses
expectations b) To minimize uncertainties
c) To maximize potential bankruptcy
Answer: c) It increases with higher risks d) To affect the continuity of the organization
66) What is the potential consequence for a Answer:: b) To minimize uncertainties

business if cash flows are badly affected?
a) Increased profits 71) Why does an organization need to develop
b) Higher capital employed methods to measure risk?
c) Potential bankruptcy
d) Decreased risk exposure a) To maximize potential losses
b) To minimize uncertainties
Answer: c) Potential bankruptcy c) To be unaware of potential risks
d) To be aware of the risk it is carrying for its
67) How does the passage suggest avoiding business
potential bankruptcy in a business?
a) By increasing risk exposure Answer:: d) To be aware of the risk it is carrying for
b) By controlling the loss potential its business
c) By minimizing uncertainties
d) By maximizing capital employed 72) What does having a measure of potential losses
help an organization ensure?
Answer:: b) By controlling the loss potential
a) Adequate capital availability for discontinuation
68) What is the strong correlation mentioned in the b) Inadequate capital availability for continuance
passage regarding the loss potential of a business? c) Adequate capital availability for continuance
d) No need for capital availability
a) Correlation with external factors
b) Correlation with capital employed Answer:: c) Adequate capital availability
availabilit for
c) Correlation with
ith uncertainties of business factors continuance
d) Correlation with profit potential
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73) What is factored into pricing? Answer: c) Top management
a) The probability of loss 78) What is the main challenge in implementing risk
b) Potential profits and business policies?
c) Total investment amount
d) The risk exposure a) Balancing risks and returns
b) Overpricing risks
Answer: a) The probability of loss c) Underestimating losses
d) Maximizing profits
74) Why is the process of estimating the probability
of loss critical in risk management? Answer:: a) Balancing risks and returns
a) It results in overpricing 79) According to modern best practices, what is the

b) It ensures a loss of business basis for setting risk limits?
c) It helps identify various risks in the business
d) It prevents underestimation of losses a) Historical measures of risk
b) Economic measures of risk
Answer: a) It results in overpricing c) Total investment amount
d) Frontline employees' feedback
75) What is the potential consequence o
of
underestimation of losses? Answer: b) Economic
omic measures of risk
a) Loss of business 80) How does the passage describe the approach to
b) Lowering of profits affecting planned RAROC risks and returns within the constraints of available
c) Adequate capital availability capital?
d) No impact on profits
a) Taking an unbalanced view
Answer:: b) Lowering of profits affecting planned b) Taking a biased view
RAROC c) Taking a conservative view
d) Taking a balanced view
76) Who is primarily concerned with the
management of risk in an organization? Answer: d)) Taking a balanced view
a) Frontline employees 81) What is the initial step in the management of

b) Customers risks?
c) Top management
d) Investors a) Risk acceptance
b) Risk mitigation
Answer: c) Top management c) Risk identification and quantification
d) Risk control
77) What is the starting point for the successful
implementation of the risk management process? Answer:: c) Risk identification and quantification
a) Frontline employees
b) Middle management
c) Top management
d) Investors
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82) What is the nextt step after identifying and c) Risk Measurement
measuring risks? d) Risk Pricing
a) Risk acceptance Answer:: b) Organization for Risk Management

b) Risk mitigation
c) Risk avoidance 87) What is the overall responsibility of the Board of
d) Risk appreciation Directors in the risk management organization?
Answer: b) Risk mitigation a) Risk Identification

b) Risk Mitigation
83) How does the passage describe the objective of c) Risk Management Policies
risk management? d) Risk Pricing
a) Oriented towards profit maximization

ation Answer:: c) Risk Management Policies
b) Oriented towards risk acceptance
c) Oriented towards risk control 88) Which group within the risk management
d) Oriented towards risk appreciation organization has the responsibility for articulating
risk management
gement policies and procedures?
Answer:: c) Oriented towards risk control
a) The Risk Management Committee of the Board
84) What is highlighted as a requirement for b) The Committee of senior-level
level executives
effective risk management? c) The Risk management support group
d) The Board of Directors
a) A separate setup in the organization
b) Minimal skills Answer: d) The Board of Directors
c) General business knowledge
d) No specialized skills needed 89) What is the role of the Committee
Commit of senior-level
executives in the risk management organization?
Answer:: a) A separate setup in the organization
a) Risk Identification
85) What distinguishes risk management as a job? b) Risk Monitoring and Control
c) Risk Pricing
a) Its focus on profit maximization d) Risk Mitigation
b) Its focus on risk avoidance
c) Its requirement for special skills and orientation Answer:: b) Risk Monitoring and Control
towards control
d) Its requirement for minimal skills and orientation 90) What is the purpose of the Risk Management
towards acceptance Committee of the Board in the risk management
organization?
Answer:: c) Its requirement for special skills and
orientation towards control a) Risk Identification
b) Risk Measurement
86) What is the first component
nt of the risk c) Articulating risk management policies and
management framework? procedures
d) Risk Mitigation
a) Risk Identification
b) Organization for Risk Management Answer:: c) Articulating risk management policies
and procedures
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91) What level of the organizational structure does a) The Board of Directors
the Risk Management Committee operate at? b) The Risk Management Committee
a) Frontline employees c) The Committee of senior-level
level executives
b) Board level Sub-Committee d) Frontline employees
c) Middle management
d) Risk management support group Answer:: c) The Committee of senior-level
senior executives
Answer: b) Board level Sub-Committee

96) What are some of the major risks?
92) What are the responsibilities of the
he Risk
Management Committee? a) Profit risk and loss risk
b) Market risk and credit risk
a) Implementation of risk and business policies c) Credit risk and operational risk
b) Setting guidelines for risk management and d) Profit risk and interest rate risk
reporting
c) Monitoring and reporting the risk profile Answer:: c) Credit risk and operational risk
d) Deciding on business strategy
97) How are liquidity risk and interest rate risk
Answer:: b) Setting guidelines for risk management
man managed?
and reporting
a) At the transaction level
93) What is the primary responsibility of the b) At the aggregate or portfolio
o level
Committee of senior-level executives? c) At both the transaction and portfolio levels
d) By ignoring them
a) Monitoring and reporting the risk profile
b) Setting guidelines for risk management and Answer:: b) At the aggregate or portfolio level
reporting
c) Deciding on business strategy 98) How are credit risk, operational risk, and market
d) Ensuring proper
oper manning for the processes risk addressed in risk identification?
Answer:: c) Deciding on business strategy a) Only at the transaction level

b) Only at the portfolio level
94) What is the role of the Risk management c) At both the transaction and portfolio levels
support group in the risk management organization? d) They are not considered in risk identification
a) Setting guidelines for risk management and Answer:: c) At both the transaction and portfolio
reporting levels
b) Deciding on business strategy
c) Analyzing, monitoring, and reporting the risk 99) What does aggregated risk determine?
profile
d) Ensuring proper manning for the processes a) Market conditions
b) Profit potential
Answer:: c) Analyzing, monitoring, and reporting the c) Capital needs
risk profile d) Operational efficiency
95) What does the Risk management support group Answer: c) Capital needs
report the risk profile to?
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100) What does risk identification consist of? a) Credit risk
a) Ignoring risks at the transaction level b) Funding risk

b) Identifying risks only at the portfolio level
c) Identifying various risks at the transaction level c) Basis Risk
and examining their impact on the portfolio and d) Market risk
capital requirement
d) Ignoring risks at both transaction and portfolio Answer: c) Basis Risk
levels
105) What risk does the bank face at the end of
Answer:: c) Identifying various risks at the three years due to the mismatch in the deposit
transaction level and examining their impact on the maturity and loan repayment?
portfolio and capital requirement
a) Credit risk
101) In the given example, what is the interest rate b) Funding risk or liquidity risk
on the loan linked to? c) Basis Risk
d) Operational risk
a) Fixed deposit rate
b) Benchmark Prime Lending Rate (BPLR) of the bank Answer: b) Funding risk or liquidity risk
c) Market conditions
d) Loan tenure 106) What risk does the transaction face at the end
of the three-year
year period due to a change in deposit
Answer:: b) Benchmark Prime Lending Rate (BPLR) ofo rate?
the bank
a) Credit risk
102) What type of risk does the bank face at the end b) Funding risk or liquidity risk
of three years in the given example? c) Gap or mismatch risk
d) Operational risk
a) Credit risk
b) Funding risk or liquidity risk Answer: c) Gap or mismatch risk
c) Market risk
d) Operational risk 107) What risk does the bank face as the loans get
repaid and the repayment proceeds need to be
Answer: b) Funding risk or liquidity risk deployed elsewhere?
103) What is the rate of interest on the deposit in a) Credit risk

the given example? b) Funding risk or liquidity risk
c) Reinvestment Risk
a) 1% over BPLR d) Market risk
b) 10%
c) 6% Answer: c) Reinvestment Risk
d) Not mentioned
Answer: c) 6%
104) What would arise if BPLR is reduced during the

first 3 out of the five-year period?
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108) What does the passage mention as a possibility 112) What does risk management rely on for
that adds to the risk, where the loan amount is quantitative measures of risk?
prepaid or the deposit amount is withdrawn
prematurely? a) Target variables
b) Downside potential
a) Market risk c) Sensitivity
b) Funding risk or liquidity risk d) Volatility
c) Embedded Option Risk
d) Operational risk Answer: a) Target variables
Answer: c) Embedded Option Risk 113) What are the three quantitative measures of
risks?
109) Why might the bank face Reinvesment Risk?
a) Sensitivity, market value, and downside potential
a) Due to changes in deposit rate b) Based on Sensitivity, Based on Volatility, Based on
b) Due to mismatch in deposit maturity and loan Downside Potential
repayment c) Earnings, losses due to default, uncertainties
c) Due to a change in interest rate charged on the d) Target variables, risk elements, and market
loan conditions
d) Due to the need to deploy repayment pr

proceeds Answer:: b) Based on Sensitivity, Based on Volatility,
elsewhere Based on Downside Potential
Answer:: d) Due to the need to deploy repayment 114) What do quantitative

ve measures of risk aim to
proceeds elsewhere capture?
110) What risk does the transaction face if there is a a) Certainties associated with risk elements
possibility of the loan amount being prepaid or the b) Variations in market conditions
deposit amount being withdrawn prematurely? c) Variations in target variables due to uncertainties
associated with various risk elements
a) Credit risk d) Market value and earnings
b) Funding risk or liquidity risk
c) Reinvestment Risk Answer: c) Variations
tions in target variables due to
d) Embedded Option Risk uncertainties associated with various risk elements
Answer: d) Embedded Option Risk 115) What is the basis for quantitative measures of
risk?
111) What are the target variables that quantitative
measures of risk seek to capture? a) Target variables
b) Sensitivity
a) Sensitivity, volatility, and downside potential c) Market conditions
b) Earnings,
ngs, market value, and losses due to default d) Downside potential
c) Risk elements and uncertainties
d) Credit risk, market risk, and operational risk Answer: a) Target variables
Answer:: b) Earnings, market value, and losses due to

default
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116) What does Sensitivity capture? 120) What does sensitivity measure in response
resp to a
1% change in interest rates?
a) Market parameters
b) Variations in target variables a) Market conditions
c) Deviation of a target variable due to unit b) Variations in target variables
movement of a single market parameter c) Deviation of target variables
d) Changes in interest rates d) Changes in market value
Answer:: c) Deviation of a target variable due to u unit Answer:: d) Changes in market value
movement of a single market parameter
121) What is a drawback of Sensitivity analysis?
a) It considers the impact of all market parameters
b) It only considers the impact of one market
117)
17) What is considered relevant for sensitivity
sensitivity- parameter and doesn't consider the impact of other
based measures? parameters
c) It is not affected by changes in market conditions
a) All market parameters d) It provides a comprehensive analysis of market
b) Only those market parameters driving the value parameters
of the target variable
c) Changes in target variables Answer:: b) It only considers the impact of one
d) Variations in interest rates market parameter and doesn't consider the impact
of other parameters
Answer:: b) Only those market parameters driving
the value of the target variable 122) What does Sensitivity analysis not consider?
118) What is an example of a sensitivity--based a) Impact of market conditions

measure? b) Impact of other market parameters that may
change simultaneously
a) Variations in market conditions c) Prevailing conditions
b) Change in market value due to a 1% change in d) Changes in the market environment
interest rate
c) Deviation of target variables Answer:: b) Impact of other market parameters that
d) Changes in all market parameters may change simultaneously
Answer:: b) Change in market value due to a 1% 123) What is mentioned as a drawback related to
change in interest rate the prevailing conditions in Sensitivity analysis?
119) How is sensitivity defined in relation to market a) It provides a comprehensive analysis

parameters? b) It is not affected by changes in market conditions
c) It changes as the market environment changes
a) Capturing all market parameters d) It depends on the impact of other parameters
b) Capturing onlyy irrelevant market parameters
c) Capturing the value of the target variable Answer:: c) It changes as the market environment
d) Capturing deviations of target variables changes
Answer:: b) Capturing only those market parameters

driving the value of the target variable
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124) What limitation does the passage highlight

regarding the impact of other parameters in 128) What is feasible to calculate using any set of
Sensitivity analysis? historical data?
a) It doesn't depend on prevailing conditions a) Sensitivity

b) It considers the impact of other parameters b) Volatility
c) It may not consider the impact of other c) Mean
parameters that may change simultaneously d) Stability
d) It is not affected by changes in the market
environment Answer: b) Volatility
Answer:: c) It may not consider the impact of other 129) What does the calculation
n of historical mean
parameters that may change simultaneously and volatility require?
a) Frequency of observation
b) Sensitivity analysis
125) What is one drawback of Sensitivity analysis in c) Underlying parameters

terms of its consideration
nsideration of market parameters? d) Time series
a) It considers the impact of all market parameters Answer: d) Time series

b) It only considers the impact of one market
parameter 130) What is the purpose of the given table in the
c) It doesn't depend on prevailing conditions passage?
d) It is not affected by changes in the market
environment a) To calculate the sensitivity of share prices
b) To calculate the historical volatility based on time
Answer: b) It only considers the impact of one series
market parameter c) To determine the mean deviation of share prices
d) To identify the square of the deviation in share
126) What does volatility characterize in terms of a prices
random variable?
Answer:: b) To calculate the historical volatility based
a) The sensitivity of the variable on time series
b) The stability or instability of the variable
c) The mean of the variable 131) What does the "Mean Deviation" column
d) The underlyingg parameters of the variable represent in the table?
Answer:: b) The stability or instability of the variable a) The average share price
b) The deviation of share prices from the mean
127) How is volatility? c) The square of the deviation
d) The total deviation of share prices
a) The mean of the values of variables
b) The standard deviation of the values of variables Answer:: b) The deviation of share prices
pri from the
c) The sensitivity of the variables mean
d) The instability of the variables
Answer:: b) The standard deviation of the values of

variables
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132) What does the "Square of Dev" column b) One week

represent in the table? c) One year
d) One day
a) The square of the average share price
b) The total deviation of share prices Answer: c) One year
c) The square of the deviation of share prices from
the mean 137) How is daily volatility converted into weekly or
d) The sensitivity of share prices monthly volatility?
Answer:: c) The square of the deviation of share a) By using the mean deviation
prices from the mean b) By changing the frequency of observation
133) What is the average of the "Total" column in c) By altering the period of observation
the table? d) By adjusting the square root of time rule
a) 570 Answer:: b) By changing the frequency of

b) 2120 observation
c) 424
d) 20.59 138) What rule is used to convert daily volatility into
weekly or monthly volatility?
Answer: c) 424
a) Square root of volatility rule
134) What does "Sqrt 20.59" represent in the table? b) Time series rule
c) Square root of time rule
a) The square root of the mean deviation d) Frequency conversion rule
b) The standard deviation of share prices
c) The sensitivity of share prices Answer:: c) Square root of time rule
d) The square root of the average of the "Total"
column 139) What is the equation for volatility over a time
horizon "T"?
Answer:: b) The standard deviation of share prices
a) Daily Volatility + square root of 'T'
135) What is required for defining a time sseries? b) Daily Volatility - square root of 'T'
c) Daily Volatility x square root of 'T'
a) Historical mean d) Daily Volatility / square root of 'T'
b) Sensitivity analysis
c) The period of observation and the frequency of Answer:: c) Daily Volatility x square root of 'T'
observation
d) Market parameters 140) If the daily volatility of a stock is 1.5%, what
would be the monthly volatility, y, assuming a time
Answer:: c) The period of observation and the horizon of one month?
frequency of observation
a) 1.5 x 2 (Square root of 30)
136) In the example given, what is the period of b) 1.5 x 5.48 (Square root of 30)
observation
bservation for determining the volatility of a stock c) 1.5 + 5.48 (Square root of 30)
price? d) 1.5 - 5.48 (Square root of 30)
a) One month Answer:: b) 1.5 x 5.48 (Square root of 30)

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d) Sensitivity to market parameters

ameters
141) How does the time horizon impact volatility?
Answer:: b) Both upside and downside deviation
a) The time horizon does not impact volatility
b) Volatility decreases with a longer time horizon 146) What does downside potential capture,
c) Volatility increases with a longer time horizon specifically?
d) Volatility remains constant regardless of the time
horizon a) Only potential losses
b) Only potential profits
Answer: c) Volatility increasess with a longer time c) Both potential losses and potential profits
horizon d) Probability of occurrence
142) What does volatility help capture? Answer: a) Only potential losses
a) Market parameters 147) What is the downside potential the most

b) Possible variations around the average of the comprehensive measure of?
target variable, both upside and downside
c) Historical mean a) Sensitivity to market parameters
d) Sensitivity of the target variable b) Potential profits
c) Probability of occurrence
Answer: b) Possibleble variations around the average of d) Risk
the target variable, both upside and downside
Answer: d) Risk
143) How is the upside and downside potential of
the target variable estimated? 148) What difficulty is mentioned in estimating the
downside potential?
a) By using the square root rule
b) By altering the time horizon a) Estimating potential losses
c) By historical observations
ons on the target variable b) Estimating potential profits
d) By changing the frequency of observation c) Estimating the probabilities of potential losses
d) Modelling the probability distribution of potential
Answer:: c) By historical observations on the target profits
variable
Answer:: c) Estimating the probabilities of potential
144) What factor is mentioned as impacting the losses
volatility, as per the example in the passage?
149) What does the worst-case
case scenario serve to
a) The time horizon quantify?
b) The frequency of observation
c) The historical mean a) Potential profits
d) The square root rule b) Sensitivity to market parameters
c) Potential losses
Answer: a) The time horizon d) Probability of occurrence
145) What does volatility capture? Answer: c) Potential losses
a) Only upside deviation

b) Both upside and downside deviation
c) Only downside deviation
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150) What is the measure most relied upon by the Answer:: c) To cover the cost of capital
banking
ng and financial service industry as well as
regulators? 155) What needs to be factored into pricing due to
the probability of loss associated with risks?
a) Sensitivity analysis
b) Volatility a) Only historical observations
c) Downside potential b) Only capital charge
d) Risk Pricing c) Only loss probabilities
d) Both capital charge and loss probabilities
Answer: d) Risk Pricing
Answer:: d) Both capital charge and loss probabilities
151) What is the primary impact of risks in banking 156) In the example provided, what is the average
transactions? loss on Level 2 accounts according to historical
observations?
a) Increased profits
b) Reduced regulatory requirements a) 5%
c) Capital maintenance costs b) 10%
d) Internal generation of capital c) 15%
d) 20%
Answer: c) Capital maintenance costs
Answer: b) 10%
152) What is the cost of capital?
157) What does the risk premium of 10% represent
a) The cost of banking transactions in the pricing?
b) The cost of dividends paid to investors
c) The cost off internal generation of capital a) The actual costs incurred
d) The cost of regulatory requirements b) The cost of funds
c) The probability of loss
Answer:: b) The cost of dividends paid to investors d) The additional charge for possible
ossible losses
153) What does the pricing or transaction in banking Answer:: d) The additional charge for possible losses
need to take into account?
158) What does risk pricing imply?
a) Only regulatory requirements
b) Only internal generation of capital a) Only factoring in actual costs
c) Only dividends paid to investors b) Factoring in risks through capital charge and loss
d) Factors discussed in the passage probabilities
c) Ignoring historical observations
Answer:: d) Factors discussed in the passage d) Excluding the cost of funds
154) Why should each banking transaction be able Answer:: b) Factoring in risks through capital charge
to generate necessary surplus? and loss probabilities
a) To meet regulatory requirements

b) To reduce capital maintenance costs
c) To cover the cost of capital
d) To avoid internal generation of capital
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159) What are the actual costs incurred in a a) Profit margin

transaction? b) Operating expenses
c) Pricing being transaction-based
a) Only the cost of funds d) Time value of money
b) Only the costs incurred in giving services
c) Only the cost of maintaining
ntaining infrastructure Answer:: c) Pricing being transaction-based
transaction
d) Both the cost of funds and the costs incurred in 164) In the context of pricing, what does "Return on
giving services net worth" refer to?
Answer:: d) Both the cost of funds and the costs a) The profit margin
incurred in giving services b) The capital charge
c) The profitability relative to the equity invested
160) What should pricing take into account? d) The loss probabilities
a) Only loss probabilities Answer:: c) The profitability relative to the equity

b) Only operating expenses invested
c) Cost of deployable funds, operating expenses, loss
probabilities, capital charge, and profit margin or 165) What is the key driver in managing a business?
bus
return on net worth
d) Only profit margin or return on net worth a) Stand-alone risk management
b) Seeking enhancement in risk-adjusted
adjusted return on
Answer:: c) Cost of deployable funds, operating capital (RAROC)
expenses, loss probabilities,
ities, capital charge, and c) Setting risk limits
profit margin or return on net worth d) Business policies
161) Why should the cost of funds correspond to the Answer:: b) Seeking enhancement in risk
risk-adjusted
term for which it is deployed? return on capital (RAROC)
a) Due to risk measurement 166) How does the passage describe

ibe the approach
b) Due to operating expenses to risk management?
c) Due to loss probabilities
d) Due to the time value of money a) Stand-alone and isolated
b) Focused only on risk limits
Answer:: d) Due to the time value of money c) Facilitating implementation of risk and business
policies simultaneously
162) What is emphasized as being transaction
transaction-based d) Centered on economic measures of risk
in pricing?
Answer:: c) Facilitating implementation of risk and
a) Profit margin business policies simultaneously
b) Risk measurement
c) Capital charge
d) Deployable funds
Answer: b) Risk measurement
163) What is mentioned as one off the key reasons

for risk measurement at the transaction level?
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167) According to modern best practices, what is a) Comprehensive risk measurement approach
considered when setting risk limits? b) Corporate level strategies
c) Management expertise
a) Only risk-adjusted return d) Both a and c
b) Only economic measures of risk
c) Business policies Answer:: d) Both a and c (Comprehensive risk
d) Economic measures of risk and ensuring
nsuring the best measurement approach and Management expertise)
risk-adjusted return
172) What is highlighted as necessary in addition to
Answer:: d) Economic measures of risk and ensuring putting in place an organizational structure for risk
the best risk-adjusted return management?
168) What does RAROC stand for? a) Guidelines and parameters

a) Risk Assessment, Reduction, and Oversight b) Corporate level strategies
Committee c) Risk management policies
b) Return on Assets and Return on Capital d) Feedback on the actual functioning
c) Risk-Adjusted Return on Capital
d) Risk and Resource Optimization Center Answer: d) Feedback on the actual functioning
Answer: c) Risk-Adjusted
Adjusted Return on Capital 173) What are risk management policies adopted at
the corporate level consistent with?
169) Why does the passage emphasize that the
approach to risk management cannot be in a) Available capital
isolation? b) Broader business strategies, capital strength,
management expertise, and risk appetite
a) To promote stand-alone
alone risk management c) Organizational structure
b) To ensure consistency in implementing risk and d) Guidelines and parameters
business policies
c) To discourage economic measures of risk Answer:: b) Broader business strategies, capital
d) To prioritize setting risk limits strength, management expertise, and risk appetite
Answer:: b) To ensure consistency in implementing 174) What does the passage emphasize the
risk and business policies necessity of for the purpose of control?
170) What is a question of takingg a balanced view a) Organizational structure

on? b) Comprehensive risk
isk measurement approach
c) Feedback of the actual functioning
a) Risks and returns d) Corporate level strategies
b) Available capital
c) Organizational structure Answer:: c) Feedback of the actual functioning
d) Corporate level strategies
Answer: a) Risks and returns
171) What does the passage mention as essential for

achieving the objectives of risk management within
the constraints of available capital?
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175) What does the monitoring of feedback aim to a) To increase divergence

ensure? b) To ensure strong MIS
c) To assess and
d adjust risk management strategies
a) Increasing planned performance d) To avoid feedback monitoring
b) Decreasing actual performance
c) Keeping the divergence between planned and Answer:: c) To assess and adjust risk management
actual performance at an acceptable level strategies
d) Ignoring planned performance
180) What is the responsibility of the bank's board
Answer:: c) Keeping the divergence between planned of directors regarding risk assessment?
and actual performance at an acceptable level
a) Developing internal policies
176) What is highlighted
ted as essential for keeping risk b) Ensuring effective control
at an acceptable level? c) Establishing a method for monitoring compliance
d) Allowing management to handle risk assessment
a) Well-laid-out procedures
b) Periodical review and evaluation Answer:: c) Establishing a method for monitoring
c) Strong Management Information System (MIS) compliance
d) All of the above
181) What is mentioned as essential to the risk
Answer: d) All of the above management process in terms of control?
177) What is the purpose of a separate

e risk a) External audits
management framework independent of b) Internal control structure
operational departments? c) Independent review
d) Both b and c
a) Increasing divergence
b) Clear delineation of responsibility for Answer:: d) Both b and c (Internal control structure
management of risk and Independent review)
c) Decreasing control
d) Ignoring feedback 182) How does the board committee on Risk
Management contribute to the
e process?
Answer:: b) Clear delineation of responsibility for
management of risk a) By conducting internal audits
b) By overseeing well-ordered
ordered and prudent conduct
178) What does the passage emphasize as necessary of business
for reporting, monitoring, and controlling risk? c) By establishing the banks' capital level
d) By handling risk assessment
a) Increasing planned performance
b) Comprehensive risk reporting framework Answer: b) By overseeing well-ordered
ordered and prudent
c) Decreasing actual performance conduct of business
d) Ignoring well-laid-out procedures
Answer:: b) Comprehensive risk reporting framework
179) Why does the passage mention periodical

review and evaluation as part of what banks require
to keep risk at an acceptable level?
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183) What should the board of directors regularly the cash inflow associated with the trading business
verify? on the "Today" scenario?
a) Compliance with internal policies a) 960 Rs

b) Adequacy of internal controls b) 2000 Rs
c) Involvement of internal or external audits c) 500 Rs
d) All of the above d) 100 Kg
Answer:: d) All of the above (Compliance with Answer: b) 2000 Rs

internal policies,
licies, Adequacy of internal controls,
Involvement of internal or external audits) 188) What is mentioned as an example of a risk
element in the trading business scenario?
184) What is the role of the banks' internal control a) Cash inflow
structure in the risk management process? b) Sale of goods
c) Volume of goods
a) To handle risk assessment d) Unit Price
b) To establish a method for monitoring compliance
complia
c) To ensure effective control, including an Answer: c) Volume of goods
independent review
d) To develop internal policies 189) What does risk mitigation aim to achieve in the
context of uncertainties?
Answer:: c) To ensure effective control, including an
independent review a) Introducing new uncertainties
b) Ignoring uncertainties
185) What is the goal of risk mitigation? c) Reducing or eliminating uncertainties
d) Increasing uncertainties
a) Increasing uncertainties
b) Reducing uncertainties associated with risk Answer:: c) Reducing or eliminating uncertainties
elements
c) Introducing new uncertainties 190) What is the purpose of entering into a sale and
d) Ignoring uncertainties purchase contract in the trading business?
Answer:: b) Reducing uncertainties associated with a) To increase uncertainties

risk elements b) To eliminate uncertainties associated with
purchase price
186) What does the passage refer to as Risk c) To introduce new uncertainties
Mitigation? d) To ignore uncertainties
a) Strategies that introduce uncertainties Answer:: b) To eliminate uncertainties associated

b) Strategies that ignore uncertainties with purchase price
c) Strategies that reduce or eliminate uncertainties
associated with risk elements
d) Strategies that increase uncertainties
Answer:: c) Strategies that reduce or eliminate

uncertainties associated with risk elements
187) In the example provided in the passage, what is

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191) In the example provided, what is mentione

mentioned as b) Reducing upside
ide potential of profits
another risk element introduced by entering into a c) Increasing overall risks
contract with a transport services provider? d) Introducing new risks
a) Volume uncertainty Answer:: b) Reducing upside potential of profits

b) Purchase price uncertainty
c) Administrative cost uncertainty 196) How does risk mitigation impact the upside
d) Counterparty commitment uncertainty potential of profits in the trading business?
Answer: d) Counterparty commitment

mitment uncertainty a) It increases upside potential
b) It has no impact on upside potential
192) What does the passage suggest about the c) It limits upside potential
businessman's approach to risk in the trading d) It eliminates upside potential
business?
Answer:: c) It limits upside potential
a) Ignoring uncertainties
b) Increasing uncertainties 197) What does the passage suggest about the
c) Reducing uncertainties through contracts impact of risk mitigation strategies on the stability of
d) Introducing new uncertainties net cash flow
low in the trading business?
Answer:: c) Reducing uncertainties through contracts a) It increases stability

b) It has no impact on stability
193) In the context of the trading business scenario, c) It reduces stability
what does the passage highlight as a potential risk d) It eliminates stability
associated with contract counterparties?
Answer: a) It increases stability
a) Volume uncertainty
b) Administrative cost uncertainty 198) In the context of banking, what is mentioned as
c) Purchase price uncertainty a consequence of using risk mitigation techniques
d) Counterparty commitment uncertainty on different types of risks?
Answer:: d) Counterparty commitment uncertainty a) The techniques are the same for all types of risks
b) The techniques are different for different types of
194) What may be a consequence of entering into risks
contracts to mitigate risks in the trading business? c) Risk mitigation has no impact on different types of
risks
a) Introducing new risks d) Risk mitigation eliminates
es all types of risks
b) Ignoring risks
c) Reducing overall risks to a large extent Answer:: b) The techniques are different for different
d) Increasing risks types of risks
Answer: a) Introducing new risks
195) What is a potential consequence of entering

into various contracts to mitigate risks in the trading
business?
a) Ignoring risks
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199) How does the passage describe the impact of c) To eliminate variability
risk mitigation in banking? d) To reduce downside variability in net cash flow
a) It eliminates all risks Answer:: d) To reduce downside variability in net

b) It increases all risks cash flow
c) It reduces risks throughgh various techniques
d) It introduces new risks 204) What is a consequence of risk mitigation
measures on upside
side potential in banking?
Answer:: c) It reduces risks through various
techniques a) They eliminate upside potential
b) They increase upside potential
200) What traditional techniques are mentioned in c) They have no impact on upside potential
the passage for mitigating credit risk in banking? d) They reduce upside potential
a) Interest rate swaps and forward rate agreemen

agreements Answer:: d) They reduce upside potential
b) Collateralizations, third party guarantees, etc.
c) Forex forward contracts and options 205) What is associated with counterparty risk in
d) Mitigation of forex risks risk mitigation?
Answer:: b) Collateralizations, third party a) Interest rate risk

guarantees, etc. b) Mitigation of forex risks
c) Forex forward contracts
201) What techniques are mentioned for mitigating d) Markets and exchanges
interest rate risk in banking?
Answer:: d) Markets and exchanges
a) Forex forward contracts
b) Collateralizations 206) How have markets responded to counterparty
c) Interest rate swaps and forward rate agreements risk?
d) Mitigation of forex risks
a) By increasing counterparty risk
Answer:: c) Interest rate swaps and forward rate b) By eliminating counterparty risk
agreements c) By establishing "Exchanges"
d) By ignoring counterparty risk
202) How do risk mitigation measures impact the
variability in net cash flow? Answer:: c) By establishing "Exchanges"
a) They increase variability 207) What role do "Exchanges" play in mitigating

b) They have no impact on variability counterparty risk?
c) They eliminate variability
d) They reduce variability a) They increase counterparty risk
b) They eliminate
nate counterparty risk
Answer: d) They reduce variability c) They have no impact on counterparty risk
d) They act as the central counterparty, reducing
203) What is the common goal of risk mitigation counterparty risk
measures?
Answer:: d) They act as the central counterparty,
a) To increase downside variability reducing counterparty risk
b) To increase upside potential
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208) How is counterparty risk substantially reduced

when entering a contract with an exchange? Answer: b) Standard deviation
a) Exchange increases counterparty risk 213) How is the risk measured in the example
b) Exchange eliminates counterparty risk expressed as a percentage of the mean?
c) Exchange acts as the central counterparty
d) Exchange has no impact on counterparty risk a) 10%
b) 30%
Answer: c) Exchange acts as the
he central c) 44% (approx)
counterparty d) 50%
209) What risk is mentioned to always be associated Answer: c) 44% (approx)

with counterparty risk in risk mitigation?
214) What is the significance of the standard
a) Market risk deviation to the mean an in the context of risk
b) Interest rate risk mitigation through diversification?
c) Operational risk
d) Mitigation of counterparty risk a) It increases risks
b) It eliminates risks
Answer: c) Operational risk c) It reduces risks
d) It has no impact on risks
210) How can risks be mitigated through
diversification? Answer: c) It reduces risks
a) By increasing risks 215) What does the ratio of standard deviation to

b) By eliminating risks mean measure in the context of comparing risks?
c) By reducing risks
d) By ignoring risks a) Profit potential
b) Loss potential
Answer: c) By reducing risks c) Variability of cash flows
d) Business growth
211) What is the example given in the passage to
illustrate risk mitigation through diversification?
fication? Answer:: c) Variability of cash flows
a) Mr. B's business 216) In the example, what is the ratio of standard
b) Mr. A's business deviation to mean for Business A?
c) Mr. C's business
d) Mr. D's business a) 30%
b) 44% (approx)
Answer: b) Mr. A's business c) 61%
d) 25%
212) What measure is used to quantify the risk in
the example of Mr. A's business? Answer: b) 44% (approx)
a) Volatility
b) Standard deviation
c) Mean deviation
d) Mean
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217) What is the significance of the ratio of standard a) Increasing risks

deviation to mean in Mr. X's case for his total b) Reducing risks
portfolio? c) Ignoring risks
d) Doubling risks
a) It increases risks
b) It eliminates risks Answer: b) Reducing risks
c) It reduces risks
d) It has no impact on risks 222) What is the primary reason for the observed
reduction in risk in Mr. X's total portfolio?
Answer: c) It reduces risks
a) Unidirectional cash flows
218) What is the minimum observed ratio of b) Variations in cash flows
standard deviation to mean for individual businesses c) Limited number of businesses
in Mr. X's case? d) Lack of diversification
a) 36% Answer: b) Variations in cash flows

lows
b) 44% (approx)
c) 61% 223) In the context of a portfolio, why is risk
d) 25% associated with the portfolio less than the weighted
average of risks of individual items?
Answer: a) 36%
a) The total portfolio has no risks
219) How does the ratio of standard deviation to b) Variations in cash flows of individual items offset
mean for the total portfolio compare to the each other
minimum observed in individual businesses? c) The total
otal portfolio has higher risks
d) The total portfolio has fewer items
a) It is higher
b) It is lower Answer:: b) Variations in cash flows of individual
c) It is the same items offset each other
d) It cannot be determined
224) What is the ratio of standard deviation to mean
Answer: b) It is lower for the total portfolio in Mr. X's case?
220) Why is the ratio of standard deviation to mean a) 25%

lower for Mr. X's total
otal portfolio compared to b) 36%
individual businesses? c) 44% (approx)
d) 61%
a) The total portfolio has no risks
b) Variations in cash flows of individual businesses Answer: a) 25%
offset each other
c) The total portfolio has higher risks
d) The total portfolio has fewer businesses
Answer: b) Variations
riations in cash flows of individual
businesses offset each other
221) What does the term "diversification of risks"

refer to in the context of Mr. X's businesses?
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225) How does diversification affect the risk level of c) Risks in a portfolio are not affected by
a portfolio in banking business? diversification
d) Risks in a portfolio have no variations
a) Increases the risk level
b) Has no effect on the risk level Answer:: b) Risks in a portfolio do not materialize
c) Lowers the risk level simultaneously
d) Causes unidirectional risks
228) What is the primary reason for the reduction in
Answer: c) Lowers the risk level portfolio risk in banking business?
226) In the context of a banking portfolio, why is the a) Unidirectional risk behavior
risk level lower than the individual risks of accounts? b) Limited number of accounts
c) Variations in risks offsetting each other
a) All accounts behave in a unidirectional manner d) Lack of diversification
b) Variations in risks are offsetting each other
c) The total portfolio has fewer risks Answer: c) Variations in risks offsetting each other
d) There is no diversification in banking portfolios
229) In banking, why does a portfolio with diverse
Answer:: b) Variations in risks are offsetting each accounts have lower risk than the weighted average
other of individual account risks?
227) How does the behavior of risks in a banking a) All accounts have the same risk level
portfolio differ from unidirectional risks? b) Variations in account risks offset each other
c)) The total portfolio has fewer accounts
a) Risks in a portfolio
io always move in the same d) There is no risk reduction in banking portfolios
direction
b) Risks in a portfolio do not materialize Answer:: b) Variations in account risks offset each
simultaneously other
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CHAPTER 12 -: RISKS IN BANKING BUSINESS
1) What is the primary source of liquidity risk for

f d) No impact on the bank's financial situation
banks?
Answer:: c) Obtaining funds at a cost higher than
a) Funding long-term assets with long--term planned or normal costs
liabilities
b) Funding long-term
term assets with short
short-term 5) What are the potential
tential consequences when
liabilities banks fail to fund the liquidity gap?
c) Funding short-term
term assets with long-term
long
liabilities a) Increased profitability
d) Funding short-term
term assets with short-term
short b) Enhanced financial stability
liabilities c) Default with serious consequences
d) Lower operational costs
Answer: b) Funding long-term
term assets with short
short-
term liabilities Answer:: c) Default with serious consequences
2) How is liquidity risk defined? 6) What is the primaryy cause of Funding Risk for
banks?
a) The inability to obtain long-term
term funding
b) The inability to obtain funds at any cost a) Sudden increase in interest rates
c) The inability to obtain funds to meet cash b) Unanticipated withdrawal/non
withdrawal/non-renewal of
flow obligations at a reasonable rate deposits
d) The inability to obtain short-term
term funding c) Overvaluation of assets
d) Delayed repayment of loans
Answer:: c) The inability to obtain funds to meet
cash flow obligations at a reasonable rate Answer:: b) Unanticipated withdrawal/non
withdrawal/non-
renewal of deposits
3) Why is the funding liquidity requirement
crucial for banks? 7) What does Time Risk in banks arise from?
a) It ensures long-term profitability a) Unplanned closure of branches

b) It minimizes refinancing risk b) Non-renewal
renewal of term deposits
c) It helps meet liquidity shortfalls at planned c) Sudden decrease in interest rates
costs d) Delayed repayment of installments (EMIs) by
d) It prevents the bank from obtaining funds borrowers
Answer:: c) It helps meet liquidity shortfalls at Answer:: d) Delayed repayment of installments

planned costs (EMIs) by borrowers
4) What does a liquidity shortfall for banks

result in?
a) Lower costs than planned

b) Meeting cash flow obligations easily
c) Obtaining funds at a cost higher than planned
or normal costs
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8) How can Funding Risk be described? Answer:: b) The potential of loss due to
borrower or counterparty
unterparty failure to meet
a) The need to compensate for non-receipt
receipt of obligations
expected inflows
b) The need to replace net outflows due to 12) In which type of borrowing between banks
unexpected events does Counterparty Risk typically occur?
c) The need to diversify investment portfolios
d) The need to manage operational cos
costs a) Call Money
b) Notice Money
Answer:: b) The need to replace net outflows c) Term Money
due to unexpected events d) Demand Money
Answer: a) Call Money

9) What is the primary concern associated with
Call Risk in banks?
13) What characterizes Country Risk in the
a) Unexpected interest rate fluctuations context of credit risk?
b) Crystallization of contingent liabilities
c) Inability to undertake profitable
rofitable business a) Non-performance
performance due to borrower's financial
opportunities constraints
d) Losses due to non-renewal
renewal of term deposits b) Non-performance
performance due to constraints or
restrictions imposed by a country
Answer:: b) Crystallization of contingent c) Losses resulting from inadequate internal
liabilities processes
d) Losses resulting from external events
10) When does Counterparty Risk occur?
Answer: b) Non-performance
performance due to constraints
a) When customers withdraw their deposits or restrictions imposed by a country
b) When there is a sudden increase in interest
in
rates 14) How is Operational Risk defined?
c) When trading partners refuse or are unable
to perform a) The risk of loss due to borrower or
d) When there is a delay in loan approvals counterparty failure
b) The risk of loss resulting from inadequate or
Answer:: c) When trading partners refuse or are failed internal processes, people, and systems
unable to perform c) The risk of loss due to unexpected market
conditions
11) How is Credit Risk most simply defined? d) The risk of loss due to unexpected interest
rate fluctuations
a) The risk of interest rate fluctuations
uctuations
b) The potential of loss due to borrower or Answer:: b) The risk of loss resulting from
counterparty failure to meet obligations inadequate or failed internal processes, people,
c) The risk of non-renewal
renewal of term deposits and systems
d) The potential of loss due to unexpected
market conditions
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15) Whichch two risks are considered as types of 19) What is another name for the risk
Operational Risk but are not covered under the associated with a bank's reputation and
definition of operational risk by BCBS? adherence to principles of integrity and fair
dealing?
a) Credit Risk and Market Risk
b) Market Risk and Reputation Risk a) Compliance Risk
c) Strategic Risk and Credit Risk b) Transaction Risk
d) Strategic Risk and Reputation Risk c) Strategic Risk
d) Integrity Risk
Answer:: d) Strategic Risk and Reputation Risk
Answer: d) Integrity Risk
16) How is Operational Risk generally defined in
relation to market and credit risk? 20) Why do regulators, including RBI, emphasize
integrity risk in banks?
a) Any risk related to market or credit risk
b) Any risk not categorized as market or credit a) To increase operational efficiency
risk b) To enhance profitability
c) Any risk associated
sociated with financial loss c) To ensure a compliance culture in the
d) Any risk not associated with legal or business operations of banks
regulatory sanctions d) To minimize market risk
Answer:: b) Any risk not categorized as market Answer:: c) To ensure a compliance culture in
or credit risk the business operations of banks
17) What does Transaction Risk encompass? 21) According to the BCBS definition, which risk
falls outside the scope of Operational Risk?
a) Market fluctuations
b) Fraud, failed business processes, and the a) Transaction Risk
inability to maintain business continuity b) Compliance Risk
c) Credit rating changes c) Strategic Risk
d) Interest rate changes d) Reputation Risk
Answer:: b) Fraud, failed business processes, and Answer: c) Strategic Risk

the inability to maintain business continuity
22) What is the primary source of Strategic Risk?
18) How is Compliance Risk defined?
a) Fraud and failed business processes
a) The risk of financial
ial loss due to market b) Adverse business decisions, improper
changes implementation, or lack of responsiveness to
b) The risk of legal or regulatory sanction, industry changes
financial loss, or reputation loss c) Legal or regulatory sanctions
c) The risk of fraud and failed business d) Market fluctuations
processes
d) The risk of credit rating changes Answer:: b) Adverse business decisions,
improper implementation, or lack of
Answer:: b) The risk of legal or regulatory responsiveness to industry changes
sanction, financial
ancial loss, or reputation loss
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23) What does Strategic Risk assess in an Answer:: b) Adjusting the value of an asset to
organization? reflect its value as determined by current
market conditions
a) The level of market risk
b) The gap between the strategy aimed at and 27) How is the market value determined in the
implemented Mark to Market (MTM) accounting practice?
c) The efficiency of internal processes
d) The extent of compliance with regulations a) Based on the asset's
et's original cost
b) Based on the asset's historical value
Answer:: b) The gap between the strategy aimed c) Based on the asset's future value
at and implemented d) Based on what a company would get for the
asset if it was sold at that point in time
24) How is Reputation Risk defined?
Answer:: d) Based on what a company would get
a) The risk of fraud and failed business for the asset if it was sold
old at that point in time
processes
b) The risk
isk arising from negative public opinion 28) In the accrual system of accounting, when is
c) The risk of legal or regulatory sanctions interest accounted for?
d) The risk of market fluctuations
a) When it is received
Answer:: b) The risk arising from negative public b) When it occurs
opinion c) When it is paid
d) When it is due
25) What consequences may Reputation Risk
expose an institute to? Answer: b) When it occurs
a) Litigation,
tion, financial loss, or a decline in 29) What are the major heads under which
customer base banking business lines are grouped from a risk
b) Operational inefficiency management perspective?
c) Market fluctuations
d) Fraud and internal errors a) Investment Portfolio, Lending Portfolio, and
Regulatory Portfolio
Answer:: a) Litigation, financial loss, or a decline b) The Banking Book, The Trading Portfolio, and
in customer base Off-Balance Sheet Exposure
c) Capital Adequacy, Liquidity Management, and
26) What does Mark to Market (MTM) involve in Operational Risk
accounting? d) Retail Banking, Corporate Banking, and
Investment Banking
a) Adjusting the value of an asset to reflect its
historical cost Answer:: b) The Banking Book, The Trading
b) Adjusting the value of an asset to reflect its Portfolio, and Off-Balance
Balance Sheet Exposure
value as determined by current market
conditions
c) Adjusting the value of a liability to reflect its
future cost
d) Adjusting the value
ue of an asset based on its
book value
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30) Which of the following is a characteristic of Answer:: b) Positions are liquidated in the
assets and liabilities in the banking book?
ook? market after holding the assets for a certain
period
a) They are subject to mark-to-market
market (MTM)
exercise 34) What accounting system is followed
foll for
b) They are not held until maturity assets in the trading book?
c) They attract capital charge on market risk
d) They are normally held until maturity, and a) Accrual system
accrual accounting is applied b) Mark-to-Market system
c) Cash accounting system
Answer:: d) They are normally held until
unti d) Historical cost system
maturity, and accrual accounting is applied
Answer: b) Mark-to-Market
Market system
31) What risks is the banking book mainly
exposed to? 35) What types of securities are mostly included
in the trading book?
a) Market risk and liquidity risk
b) Credit risk and operational risk a) Long-term investments
c) Interest rate risk and default or credit risk b) Fixed income securities, equities, foreign
d) Operational risk and liquidity risk exchange holdings, commodities, etc.
c) Marketable assets held until maturity
Answer:: c) Interest rate risk and default or d) Non-marketable assets
credit risk
Answer:: b) Fixed income securities, equities,
32) What types of assets are included in the foreign exchange holdings, commodities, etc.
trading book?
36) What
at is the primary exposure of the trading
a) Assets held until maturity book?
b) Marketable assets that can be traded in the
market a) Operational risk
c) Long-term investments b) Default or credit risk
d) Non-marketable assets c) Market risk
d) Liquidity risk
Answer:: b) Marketable assets that can be
traded in the market Answer: c) Market risk
33) How do the characteristics of assets in the 37) What part of the trading book includes
trading book differ from those in the banking derivatives?
book?
a) Assets held until maturity
a) They are normally held until maturity b) Derivatives held
eld for hedging exposures
b) Positions are liquidated in the market after c) Derivatives held for trading in the market or
holding the assets for a certain period over the counter (OTC)
c) They are not subject to market risk d) Foreign exchange holdings
d) They attract capital charge on credit risk
Answer:: c) Derivatives held for trading in the
market or over the counter (OTC)
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38) What characterizes off-balance

balance sheet 42) How is Interest Rate Risk defined in the
exposures? context of a bank's revenue?
a) They are fixed in nature a) The risk of fraud in interest rate transactions
b) They are contingent in nature b) The exposure of a bank's revenue to adverse
c) They are always part of the trading book movements in interest rates
d) They have no impact on revenue generation c) The risk of interest rate fluctuations causing
profit loss
Answer:: b) They are contingent in nature d) The risk of changes in market interest rates
39) What types of payment obligations do banks Answer:: b) The exposure of a bank's revenue to
face in off-balance sheet exposures? adverse movements in interest rates
a) Fixed payment obligations 43) What does Interest Rate Risk refer to in
b) Payment obligations contingent upon some terms of potential impact on a bank's Net
event Interest Income (NII) or Net Interest Margin
c) Payment obligations with no contingencies (NIM)?
d) Payment obligations based on historical data
a) Positive impact
Answer:: b) Payment obligations contingent b) No impact
upon some event c) Adverse impact
d) Direct impact on operational efficiency
40) How do contingencies in off-balance
balance sheet
exposures affect the revenue generation of Answer: c) Adverse impact
banks?
44) How may Interest Rate Risk be defined
defin in
a) Positively relation to the financial value of assets or
b) Negatively liabilities?
c) They have no impact on revenue
d) It depends on the type of contingency a) The risk of market fluctuations
b) The risk of fraud in financial transactions
Answer: b) Negatively c) The risk of changes in the financial value of
assets or liabilities due to fluctuations in interest
41) In what circumstances mayy contingent rates
exposures become a part of the banking book or d) The risk of credit defaults
trading book?
Answer:: c) The risk of changes in the financial
a) Only if they have market risk value of assets or liabilities due to fluctuations
b) Depending on the nature of off-balance
balance sheet in interest rates
exposure
c) Only if they have operational risk
d) Regardless of the nature of off-balance
balance sheet
exposure
Answer:: b) Depending on the nature of off-

off
balance sheet exposure
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45) What is the risk associated with the d) The risk of mismatch in asset and liability
possibility of future investments being made at maturity dates
lower ratess and future borrowings at higher
rates? Answer: b) The risk of non-parallel
parallel movements
m
in interest rates of assets and liabilities
a) Interest Rate Risk
b) Gap or Mismatch Risk 49) What is Yield Curve Risk in banking?
c) Basis Risk
d) Market Risk a) The risk of changes in the yield of fixed
deposits
Answer: a) Interest Rate Risk b) The risk of changes in the benchmark used
for pricing assets and liabilities
46) What is Gap or Mismatch Risk in banking? c) The risk of changes in the interest rates of
different assets and liabilities
a) The risk of interest rate fluctuations d) The risk of non-parallel
parallel movement in the
b) The risk of different
erent assets having different yield curve
interest rates
c) The risk arising from holding assets and Answer: d) The risk of non-parallel
parallel movement in
liabilities with different principal amounts, the yield curve
maturity dates, or repricing dates
d) The risk of market interstates 50) In a rising interest rate scenario, how can
Yield Curve Risk impact net interest
erest earned?
Answer:: c) The risk arising from holding assets
and liabilities with different principal amounts, a) It has no impact on net interest earned
maturity dates, or repricing dates b) It creates variation in net interest earned due
to non-parallel
parallel movement in the yield curve
47) In Basis Risk, what does the term "basis" c) It increases net interest earned uniformly
refer to? d) It decreases net interest earned uniformly
a) The difference in interest rates of different Answer: b) It creates variation in net interest
assets and liabilities earned due to non-parallel
parallel movement in the
b) The maturity period of assets yield curve
c) The repricing dates of liabilities
d) The principal amount of off-balance
balance sheet 51) What does Embedded Option Risk refer to?
items
a) The risk of non-parallel
parallel movements in
Answer:: a) The difference in interest rates of interest rates
different assets and liabilities b) The risk of prepayment or premature
withdrawal of loans orr deposits
48) What does Basis Risk refer to in the context c) The risk of changes in benchmark rates for
of interest rates? pricing assets and liabilities
d) The risk of mismatch in asset and liability
a) The risk of market fluctuations maturity dates
b) The risk of non-parallel
parallel movements in
interest rates of assets and liabilities Answer:: b) The risk of prepayment or
c) The risk of interest rate changes on premature withdrawal of loans or deposits
corresponding liabilities
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52) How is Reinvestment Risk

isk defined in d) The risk of more earning assets than paying
banking? liabilities
a) The uncertainty with regard to the interest Answer:: b) The risk of adverse deviations
deviatio of the
rate at which future cash flows could be mark-to-market
market value of the trading portfolio
reinvested
b) The risk of non-parallel
parallel movements in the 56) What is Forex Risk also known as?
yield curve
c) The risk of non-parallel
parallel movements in interest a) Credit Risk
rates b) Market Risk
d) The risk of changes
ges in the yield of fixed c) Exchange Risk
deposits d) Interest Rate Risk
Answer:: a) The uncertainty with regard to the Answer: c) Exchange Risk

interest rate at which future cash flows could be
reinvested 57) How is Market Liquidity Risk defined?
53) What is Net Interest Position Risk? a) The risk of adversee deviations in market
prices
a) The risk of market interest rates adjusting b) The risk of being unable to conclude a large
upwards transaction in a particular instrument near the
b) The risk of market
arket interest rates adjusting current market price
downwards c) The risk of interest rate fluctuations
c) The risk of changes in benchmark rates for d) The risk of non-parallel
parallel movements in the
pricing assets and liabilities yield curve
d) The risk of more earning assets than paying
liabilities Answer: b)) The risk of being unable to conclude
a large transaction in a particular instrument
Answer:: d) The risk of more earning assets than near the current market price
paying liabilities
54) What is another term for Market Risk?
a) Price Risk
b) Interest Rate Risk
c) Credit Risk
d) Operational Risk
Answer: a) Price Risk
55) How is Market Risk defined in terms of the

trading portfolio?
a) The risk of adverse deviations of the book

value of the trading portfolio
b) The risk of adverse deviations of the mark
mark-to-
market value of the trading portfolio
c) The risk of market interest rates adjusting
upwards
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CHAPTER 13 -: Risk Regulations in Banking Industry

Answer: a) 1988
1) During which period did the Basel
framework, also known as the Basel Capital 5) When were the minimal capital
Accord, emerge? requirements of the 1988 Basel Accord
enforced by law in the G-10
10 countries?
a) The pre-deregulation era a) 1988
b) The post-deregulation era b) 1992
c) The 1990s c) 1980
d) The Latin American debt crisis d) 1990
Answer: b) The post-deregulation

deregulation era Answer: b) 1992
2) What inspired the need for risk control 6) What was the primary focus of the 1988
and linking banking risks with banks' capital Basel Accord?
during the early 1980s?
a) Market risk
a) The Latin American debt crisis b) Minimum capital requirements linked to
b) The onset of deregulation credit exposure
c) Increasing competition among banks c) Operational risk
d) The pre-deregulation era d) Liquidity risk
Answer:: a) The Latin American debt crisis Answer:: b) Minimum capital requirements
linked to credit exposure
3) What was the primary concern of the
Basel Committee
mittee during the early 1980s? 7) What was the minimum ratio of capital to
risk-weighted
weighted assets called for by the 1988
a) Deteriorating capital ratios of Basel Accord?
international banks a) 5%
b) Increasing competition among banks b) 8%
c) The need for deregulation c) 10%
d) Growing international risks d) 12%
Answer:: a) Deteriorating capital ratios of Answer: b) 8%

international banks
8) When was the 1988 Basel Accord
4) When
en was the 1988 Basel Accord, also
required to be implemented by banks?
known as Basel I, published by the Basel
a) 1990
Committee?
b) 1992
a) 1988
c) 1995
b) 1992
d) 2000
c) 1980
d) 1990
Answer: b) 1992
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b) 10%
9) What is the present minimum ratio of c) 20%
capital to risk-weighted
weighted assets as prescribed d) 100%
by RBI?
Answer: a) 0%
a) 5%
b) 7% 13) According to the Basel framework, what
c) 9% percentage of the risk-weighted
weighted value of
d) 12% assets were banks required to hold as
capital?
Answer: c) 9%
a) 5%
10) How were bank assets classified in the b) 8%
Basel framework? c) 10%
d) 12%
a) Based on their profitability
b) Based on their maturity Answer: b) 8%
c) Based on their credit risk, carrying risk
weights of 0, 10, 20, 50, and 100% 14) Since 1988, where has the Basel
B
d) Based on their liquidity framework been progressively introduced?
Answer:: c) Based on their credit risk, a) Only in member countries

carrying risk weights of 0, 10, 20, 50, and b) Only in non-member
member countries
100% c) In member countries and almost all other
countries with active international banks
11) How were off-balance
ance sheet exposures, d) Only in a few select countries
such as performance guarantees and letters
of credit, incorporated into the calculation Answer:: c) In member count
countries and almost
of risk-weighted assets? all other countries with active international
banks
a) They were excluded from the calculation
b) They were assigned a fixed risk weight 15) What are the two main tiers of capital
c) They were included using the mechanism
mec defined by the Basel framework?
of variable credit conversion factor
d) They were treated as 100% risk-weighted
weighted a) Tier A and Tier B
b) Tier 1 and Tier 3
Answer:: c) They were included using the c) Tier 1 and Tier 2
mechanism of variable credit conversion d) Core Capital and Supplementary Capital
factor
Answer: c) Tier 1 and Tier 2
12) What was the risk-weight
weight assigned to
government debt in the Basel framewor
framework?
a) 0%
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a) To increase
rease capital requirements for
credit risk
16) What does Tier 1 or core capital b) To provide an explicit capital cushion for
include? market risk arising from trading activities
c) To reduce capital requirements for
a) Equity and disclosed reserves operational risk
b) Asset revaluation reserves and loan-loss
loan d) To eliminate capital requirements for
reserves liquidity risk
c) General provisions and undisclosed
reserves Answer: b) To provide an explicit capital
d) Hybrid (debt/equity) and debt capital cushion for market risk arising from trading
instruments activities
Answer:: a) Equity and disclosed reserves 20) When was the 1996 amendment to the
1988 Basel Accord brought into effect?
17) What is included in Tier 2 or
supplementary capital? a) 1996
b) 1998
a) Equity and disclosed reserves c) 2000
b) Asset revaluation reserves and loan-loss
loan d) 2002
reserves
c) General provisions and undisclosed Answer: b) 1998
reserves
d) Hybrid (debt/equity)
ebt/equity) and debt capital 21) What does the 1996 amendment allow
allo
instruments banks to use for measuring market risks?
Answer:: d) Hybrid (debt/equity) and debt a) Only standardized approaches

capital instruments b) Only external models
c) Proprietary in-house
house models
18) In 1996, what did the Basel Committee d) Historical observation periods
on Banking Supervision (BCBS) amend in the
1988 Basel Accord? Answer: c) Proprietary in-house
house models
a) Capital requirements for operational risk 22) How often must banks using proprietary
b)) Capital requirements for credit risk models compute Value at Risk (VAR)?
c) Capital requirements for market risk
d) Capital requirements for liquidity risk a) Weekly
b) Monthly
Answer:: c) Capital requirements for market c) Daily
risk d) Annually
19) What was the purpose of the 1996 Answer: c) Daily

amendment to the 1988 Basel Accord?
46
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26) What is the alternate standardized

approach introduced by the 1996
23) What is the time horizon for computing amendment?
VAR under the 1996 amendment?
a) Advanced modeling approach
a) One trading day b) Building block approach
b) Five trading days c) Regression analysis approach
c) Ten trading days d) Monte Carlo simulation approach
d) Fifteen trading days
Answer:: b) Building block approach
Answer: c) Ten trading days
27) According to the Market Risk
24) What is the capital charge for a bank amendment, what is required for banks to
using a proprietary model? do regarding their trading book?
a) The previous day's VAR only a) Combine it with the banking book
b) Three times the average of the daily VAR b) Segregate it and mark to market all
of the preceding 60 business days only portfolio/positions
c) The higher of the previous day's VAR and c) Eliminate it entirely
three times the average of the daily VAR of d) Apply standardized approaches
the preceding 60 business days
d) The lower of the previous day's VAR and Answer:: b) Segregate it and mark to market
three times the average of the daily VAR of all portfolio/positions
the preceding 60 business days
28) Who does the Market Risk amendment
Answer:: c) The higher of the previous day's apply to?
VAR and three times
mes the average of the
daily VAR of the preceding 60 business days a)) Only trading activities of banks
b) Only non-banking
banking securities firms
25) What does the 1996 amendment allow c) Both trading activities of banks and non
non-
banks to issue for meeting a part of their banking securities firms
market risks? d) Only commercial banks
a) Long-term subordinated debt Answer:: c) Both trading activities of banks

b) Preferred stock and non-banking
banking securities firms
c) Short-term
term subordinated debt subject to
t
a lock-in clause (Tier 3 capital)
d) Common equity
Answer: c) Short-term
term subordinated debt
subject to a lock-in
in clause (Tier 3 capital)
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29) What was

as a drawback of the credit risk
assessment under the Basel Accord? Answer:: b) To close gaps in international
supervisory coverage
a) It was too complex
b) It was not risk-sensitive enough 33) What are the two
o basic principles
c) It favored banks with higher risks mentioned in pursuit of the BCBS's work?
d) It differentiated well between banks with
lower and higher risks a) Legal enforcement and formal
supervisory authority
Answer: b) It was not risk-sensitive
sensitive enough b) No foreign bank establishment escaping
supervision and adequate supervision
30) Does the Basel Committee on Banking c) Global regulations and legal force
Supervision (BCBS) have formal supervisory d) Broad supervisory standards
ndards and detailed
authority? arrangements
a) Yes, it has legal enforcement powers Answer:: b) No foreign bank establishment

b) No, it does not possess any formal escaping supervision and adequate
supervisory authority supervision
c) Yes, it can enforce regulationss globally 34)) What was a significant aspect of the
d) No, it has limited enforcement powers Market Risk amendment?
Answer:: b) No, it does not possess any a) Restriction on the use of internal models
formal supervisory authority b) Exclusively using standardized
andardized
approaches
31) What is the primary role of the BCBS? c) Allowing banks to use internal models
(value-at-risk
risk models) for measuring market
a) To enforce regulations globally risk capital requirements
b) To possess formal supervisory authority d) Elimination of quantitative standards
c) To formulate
ate broad supervisory standards
and guidelines Answer:: c) Allowing banks to use internal
d) To have legal force for its conclusions models (value-at-risk
risk models) for meas
measuring
market risk capital requirements
Answer:: c) To formulate broad supervisory
standards and guidelines
32) What is one important objective of the

Committee's work, as mentioned in the
passage?
a) To have legal force for its conclusions

b) To close gaps in international supervisory
coverage
c) To possess formal supervisory authority
d) To enforce regulations globally
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35) Why was there a need for a revision in b) Both were placed in 50% risk weight
the Basel Accord? category
c) Both were placed in 100% risk weight
a) To make it less complex category
b) Because Basel was not able to d) AAA rating companies had a lower risk
differentiate between banks with lower and weight than B rating companies
higher risks
c) To increase capital requirements Answer:: c) Both were placed in 100% risk
uniformly weight category
d) Because Basel was too risk-sensitive
sensitive
39) What impact did Basel have on financial
Answer:: b) Because Basel was not able to
decision-making?
differentiate between banks with lower and
higher risks
a) It promoted financial decision-making
decision on
the basis of economic opportunities
36) What is an example mentioned in the
b) It promoted financial decision-making
decision on
passage to illustrate the issue with Basel I's
the basis of regulatory constraints
capital adequacy?
c) It had no impact on financial decision-
decision
a) Exposure on a company with AAA rating making
b) Exposure on a company with B rating d) It discouraged financial decision-making
decision
c) Both a and b
d) None of the above Answer:: b) It promoted financial decision-
decision
making on the basis of regulatory
Answer: c) Both a and b constraints
37) How were companies with AAA and B
ratings treated under Basel for the purpose 40) Why did Basel encourage e financing of
of capital adequacy? assets with more risks for higher returns?
a) They were treated differently a) Because it had specific guidelines for risk-
risk
b) They were treated identically sensitive financing
c) Basel did not provide guidelines for such b) Because it did not recognize the role of
cases credit risk mitigants
d) They were excluded from capital c) Because it did not differentiate between
adequacy assessment assets with different risks
d) Because it took into account operational
Answer:: b) They were treated identically risk
38) Under Basel I, how were companies Answer:: c) Because it did not differentiate
with AAA and B ratings treated in terms of between assets with different risks
risk weight?
a) Both were placed in different risk weight

categories
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41) What was a limitation of Basel 44) What is one of the objectives of revising
mentioned in the passage regarding credit the 1988 Accord related to risk
risk mitigants? management practices?
a) It recognized the role of credit risk a) To discourage the adoption of risk

mitigants management practices
b) It did not recognize the role of credit risk b) To promote the adoption of weaker risk
mitigants management practices
c) It provided specific guidelines for credit c) To help promote the adoption of stronger
risk mitigants risk management practices by the banking
d) It encouraged the use of credit risk industry
mitigants d) To eliminate risk management
managem practices
Answer:: b) It did not recognize the role of Answer:: c) To help promote the adoption
credit risk mitigants of stronger risk management practices by
the banking industry
42)) What does Pillar 1 of the Basel I Accord
focus on? 45) When was the proposal for the new
capital adequacy framework, Basel I Accord,
a) Supervisory review issued by the committee?
b) Minimum Capital Requirement
c) Effective use of disclosure a) June 1988
d) Internal assessment process b) June 1998
c) June 1999
Answer:: b) Minimum Capital Requirement d) June 2008
43) Why is it essential to ensure that the Answer: c) June 1999

revised Accord does not become a source of
competitive inequality among 46)) What is the fundamental objective
internationally active banks? behind revising the 1988 Accord?
a) To encourage unhealthy competition a) To weaken the soundness and stability of

b) To maintain consistency in capital the international banking system
adequacy regulations b) To develop a framework that strengthens
c) To promote unhealthy risk management the soundness and stability of the
practices international banking system
d) To discourage international banking c) To create competitive inequality among
internationally active banks
Answer:: b) To ensure that it does not d) To eliminate capital adequacy regulations
become a source of competitive inequality
among internationally active banks Answer:: b) To develop a framework that
strengthens the soundness and stability of
the international
national banking system
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47) What is the purpose of Pillar 2 in the b) 4 years

Basel I Accord? c) 6 years
d) 8 years
a) To set minimum capital requirements
b) To develop standardized ruleset Answer: c) 6 years
c) Supervisory review of an institution’s
capital adequacy and internal assessment 51) Who were extensively consulted during
process the preparation of the new Basel I
d) Effective use of disclosure framework?
Answer:: c) Supervisory review of an a) Only banking sector representatives

institution’s capital adequacy and internal b) Only supervisory agencies
assessment process c) Only Central banks
d) Banking sector representatives,
presentatives,
48) What is the focus of Pillar 3 in the Basel I supervisory agencies, Central banks, and
Accord? outside observers
a) Setting minimum capital requirements Answer:: d) Banking sector representatives,

b) Developing standardized ruleset
set supervisory agencies, Central banks, and
c) Supervisory review of an institution’s outside observers
capital adequacy
d) Effective use of disclosure 52) What did the committee focus on in the
June 2004 release of the Basel I framework?
f
Answer:: d) Effective use of disclosure
a) Supervisory review
b) Trading book
c) Banking book
d) Effective use of disclosure
49) What was one of the key reasons for
designing the new Basel I framework? Answer: c) Banking book
a) To eliminate regulatory capital 53) What international body did the Basel
requirements committee cooperate with for the
b) To address financial innovation treatment of bank trading books under the
c) To discourage risk-sensitive
sensitive capital new framework?
requirements
d) To focus on the banking book a) International Monetary Fund (IMF)
b) World Bank
Answer:: b) To address financial innovation c) International Organization for Securities
Commissions (IOSCO)
50) How long did the intensive preparation d) Financial Stability Board (FSB)
for the new framework take?
Answer:: c) International Organization for
a) 2 years Securities Commissions (IOSCO)
51
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54) When was the comprehensive a) It did not involve a similar requirement as
document, integrating the June 2004 and Basel II
July 2005 texts, released? b) It expanded the scope of approvals for
risk measurement
a) June 2004 c) It demanded a lesser degree of
b) June 2005 cooperation between home and host
c) June 2006 supervisors
d) June 2007 d) It did not face challenges in worldwide
adoption
Answer: c) June 2006
Answer:: b) It involved a similar
55) What is the title of the comprehensive requirement as Basel I and expanded the
document released in June 2006? scope of approvals for risk measurement
a) Basel II: A New Horizon 58) What did Basel I demand in terms of
b) Basell II: International Convergence of cooperation between home and host
Capital Measurement and Capital Standards supervisors?
c) Basel III: The Next Chapter
d) Basel II: Revised and Updated a) Limited cooperation
b) No cooperation
Answer: b) Basel II: International c) Greater degree of cooperation
Convergence of Capital Measurement and d) Cooperation only among committee
Capital Standards: A Revised Framework - members
Comprehensive Version
Answer:: c) Greater degree of cooperation
56) What was one challenge faced by
supervisors worldwide under Basel II? 59) In what year did the Committee issue
guidance to address the challenge of
a) Lack of cooperation between home and approving risk measurement approaches in
host supervisors multiple jurisdictions?
b) Need for approval of certain risk
measurement approaches in multiple a) 2004
jurisdictions b) 2005
c) Limited adoption of the new rules by c) 2006
committee members d) 2007
d) Absence of a comprehensive framework
Answer: c) 2006
Answer:: b) Need for approval of certain risk
measurement approaches in multiple
jurisdictions
57) What was a significant aspect of the

market risk amendment of 1996?
52
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60) What did the Committee provide advice

on, in addition to guidance, in the context of Answer:: b) To encourage transparency and
advanced measurement approaches for market forces
operational risk?
64) Under Pillar 1 - Minimum Capital
a) Market Discipline Requirement, how many approaches are
b) Minimum Capital Requirement mentioned for calculating capital for credit
c) Supervisory Review Process risk?
d) Allocation Mechanisms
a) 1
Answer:: d) Allocation Mechanisms b) 2
c) 3
61) How many pillars is the Basel I Accord d) 4
based on?
Answer: c) 3
a) 1
b) 2 65) What are the two approaches
c) 3 mentioned under "Capital for Credit Risk" in
d) 4 Basel II?
Answer: c) 3 a) Internal Ratings

atings Based (IRB) and
Standardised Approach (Maturity Method)
62) What is the purpose of the "Minimum b) Basic Indicator Approach and Advanced
Capital Requirement" pillar in Basel II? Measurement Approach
c) Standardised Approach and Internal
a) To set a minimum level of regulatory Models Method
capital d) Foundation Approach and Standardised
b) To promote market discipline Approach (Duration Method)
c) To review supervisory processes
d) To guide supervisory cooperation Answer: c) Standardised Approach and
Internal Models Method
Answer:: a) To set a minimum level of
regulatory capital 66) How is market risk capital calculated
under Pillar 1?
63) What does the "Market Discipline" pillar
of Basel I aim to achieve? a) Basic Indicator Approach
b) Standardised Approach (Maturity
a) To establish a minimum capital Method)
requirement c) Internal Models Method
b) To encourage transparency and market d) Advanced Measurement Approach
forces
c) To review supervisory processes Answer: b) Standardised
ndardised Approach
d) To allocate mechanisms for operational (Maturity Method)
risk
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67) Which approach is used to calculate 71) What is PCA (Prompt Corrective Action)
capital for operational risk in Basel II? used for in the context of Pillar 2?
a) Standardised Approach a)) Calculating minimum capital

b) Internal Models Method requirements
c) Basic Indicator Approach b) Ensuring soundness and integrity of
d) Advanced Measurement Approach banks' internal processes
c) Maintaining minimum capital with PCA
Answer: a) Basic Indicator
cator Approach for capital shortfall
d) Enhancing disclosure
68) How many approaches are there for
calculating capital for operational risk under Answer:: c) Maintaining minimum capital
Pillar 1? with PCA for capital shortfall
a) 1 72) Under Pillar 2, what action does the

b) 2 supervisory process take if internal
c) 3 processes of a bank are slack?
d) 4
a) Enforce market discipline
Answer: c) 3 b) Calculate minimum capital requirements
c) Prescribe differential capital
69) What is the primary focus of Pillar 2 - d) Enhance disclosure
Supervisory Review Process in Basel II?
Answer:: c) Prescribe differential capital
a) Enhancing disclosure
b) Evaluating risk assessment 73) What is the main focus of Pillar 3 -
c) Calculating minimum capital Market Discipline?
requirements a) Calculating minimum capital
d) Enforcing market discipline requirements
b) Enhancing disclosure
Answer:: b) Evaluating risk assessment c) Evaluating risk assessment
d) Enforcing prompt corrective action
70) What is the role of Pillar 2 in ensuring Answer: b) Enhancing disclosure
the adequacy of capital in banks?
74) What does CRAR stand for in the
a) Calculating minimum capital context mentioned?
requirements
a) Credit Rating and Assessment Ratio
b) Enhancing disclosure
b) Capital to Risk-weighted
weighted Assets Ratio
c) Evaluating risk assessment
c) Current Ratio and Assets Ratio
d) Maintaining prompt corrective action for
d) Credit Risk and Adequacy Ratio
capital shortfall
Answer: b) Capital to Risk-weighted
weighted Assets
Ass
Answer:: c) Evaluating risk assessment
Ratio
54
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75) What was the minimum CRAR norm for a) September 2006
banks in India up to the year ending 31 b) September 2007
March 1999? c) September 2008
d) September 2009
a) 7%
b) 8% Answer: c) September 2008
c) 9%
d) 10% 80) What was the need identified for before
the collapse of Lehman Brothers?
Answer: b) 8%
a) Reduction of international banking
76) From when did banks in India have to standards
maintain minimum CRARs of 9% on an b) Fundamental strengthening of the Basel I
ongoing basis? framework
c) Deregulation of financial institutions
a) Year ending 31 March 1998 d) Expansion of leverage in the banking
b) Year ending 31 March 1999 sector
c) Year ending 31 March 2000
d) Year ending 31 March 2001 Answer:: b) Fundamental strengthening of
the Basel I framework
Answer:: c) Year ending 31 March 2000
81) What was a major issue in the banking
77) What does the CRAR norm indicate? sector before the financial crisis?
a) The Capital to Reserve Ratio a) Excess liquidity buffers

b) The Cost to Revenue Ratio b) Inadequate leverage
c) The Capital to Risk-weighted
weighted Assets Ratio c) Poor governance and risk management
d) The Current Assets to Fixed Assets Ratio d) Strong risk appetite
Answer: c) The Capital to Risk-weighted

weighted Answer:: c) Poor governance and risk
Assets Ratio management
78) Why did the minimum CRAR norm 82) What does the passage mention about
increase from 8% to 9%? the banking sector's entry into the financial
crisis?
a) To encourage risk-taking
b) To align with international standards a) The sector had adequate liquidity buffers
c) To discourage capital adequacy b) There was a lack of leverage
d) To reduce banking competition c) Too much leverage
age and inadequate
liquidity buffers
Answer:: b) To align with international d) The sector had strong risk management
standards
Answer:: c) Too much leverage and
79) When did Lehman Brothers collapse? inadequate liquidity buffers
55
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83) What factors were demonstrated by the d) To promote riskier financial products
mispricing of credit and liquidity risks, and
excess credit growth? Answer:: c) In response to weaknesses
revealed by the financial
ial market crisis
a) Strong governance and risk management
b) Weaknesses in the Basel I framework 87) What did the Group of Governors and
c) Adequate leverage Heads of Supervision (GHOS) announce in
d) Mismanagement of liquidity buffers September 2010?
Answer:: b) Weaknesses in the Basel I a) Lower global minimum capital standards

framework b) Higher global minimum capital standards
c) Removal of capital standards
84) When did the Basel Committee issue d) No change in global minimum capital
Principles for sound liquidity risk standards
management?
Answer:: b) Higher global minimum capital
a) July 2008 standards
b) September 2008
c) July 2009 88) What is the reform package announced
d) September 2010 in July 2010 referred to as?
Answer: b) September 2008 a) Basel I

b) Basel II
85) What did the Committee strengthen in c) Basel III
July 2009, notably with regard to the d) Basel IV
treatment of certain complex securitisation
positions? Answer: c) Basel III
a) Basel capital framework 89) When were the new capital and liquidity
b) Basel II capital framework standards endorsed at the G20 Leaders'
c) Basel I capital framework Summit?
d) Principles for sound liquidity risk
management a) October 2010
b) November 2010
Answer:: c) Basel I capital framework c) December 2010
d) January 2011
86) Why did the Committee issue
enhancements to the Basel I framework? Answer: b) November 2010
a) To encourage
urage excessive leverage
b) To weaken the regulation of
internationally active banks
c) In response to weaknesses revealed by
the financial market crisis
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90) Where were the new capital and d) It had no impact on the pillars
liquidity standards agreed upon in
December 2010? Answer:: b) It revised and strengthened the
three pillars
a) London
b) Basel
c) Seoul 94) What is the purpose of the capital
d) Geneva conservation buffer (CCB)?
Answer: b) Basel a) To maximize payouts to shareholders

b) To restrict payouts when breached to
91) What were the proposed standards set meet the minimum common equity
out in mid-December
December 2010 referred to as? requirement
c) To encourage banks to engage in credit
a) Basel I booms
b) Basel II d) To reduce losses in credit busts
c) Basel III
d) Basel IV Answer:: b) To restrict payouts when
breached to meet the minimum common
Answer: c) Basel III equity requirement
92) What did the December 2010 versions 95) What iss the countercyclical capital
of Basel II set out? buffer designed to achieve?
a) International framework for credit risk a) Increase participation by banks in credit

measurement booms
b) Global regulatory framework for less b) Reduce losses in credit busts
resilient banks c) Maximize profits during economic
c) International framework for liquidity risk downturns
measurement and standards d) Eliminate system-wide
wide credit booms
d) National regulatory framework for more
resilient banks Answer: b) Reduce losses in credit busts
Answer:: c) International framework for 96) What does the leverage ratio measure?
liquidity risk measurement and standards
a) The ratio of assets to owners' equity
93) How did the enhanced Basel framework b) The risk-weighted assets
impact the pillars established by Basel II? c) The liquidity coverage ratio
d) The net stable funding ratio
a) It removed one of the pillars
b) It revised and strengthened the three Answer:: a) The ratio of assets to owners'
pillars equity
c) It reduced
ced the standards of the three
pillars
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97) What is the

he Liquidity Coverage Ratio a) January 2010
(LCR) designed to provide? b) January 2012
c) January 2014
a) Maximum cash reserves d) January 2016
b) Coverage for funding needs over a 15
15-day
period Answer: b) January 2012
c) Coverage for funding needs over a 30
30-day
period of stress 101) What is the purpose of the Regulatory
d) Coverage for funding needs over a 90
90-day Consistency Assessment Programme
period (RCAP)?
Answer: c) Coverage for funding needs over a) To encourage banks to adopt Basel II
a 30-day period of stress standards voluntarily
b) To assess the consistency and
98) What does the Net Stable Funding Ratio completeness of the adopted standards and
(NSFR) address? monitor their implementation
c) To eliminate all deviations from the
a) Credit risk regulatory framework
b) Maturity mismatches over the entire d) To establish new regulatory standards
balance sheet
c) Leverage ratio Answer: b) To assess
sess the consistency and
d) Common equity requirement completeness of the adopted standards and
monitor their implementation
Answer: b) Maturity mismatches over the
entire balance sheet 102) What does the RCAP consist of?
99) What additional proposals were made a) One work stream

for systemically important banks (SIBs) in b) Two work streams - Basel II standards
Basel III? and regulatory framework consistency
c) Three work streams - Basel
asel II standards,
a) Reduction in capital requirements regulatory framework consistency, and
b) Requirements for supplementary capital voluntary adoption
and augmented contingent capital d) Four work streams - Basel II standards,
c) Relaxation of cross-border
border supervision regulatory framework consistency,
d) Elimination of cross-border
border resolution voluntary adoption, and capital reduction
Answer: b) Requirements for Answer:: b) Two work streams - Basel II

supplementary capital and augmented standards and regulatory
tory framework
contingent capital consistency
100) When did the Group of Governors and

Heads of Supervision (GHOS) endorse the
Regulatory
ulatory Consistency Assessment
Programme (RCAP)?
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103) What does the introduction of a 106) When should the requirements for the
macro-prudential
prudential overlay represent in Basel strengthened definition of capital be fully
III? implemented?
a) A relaxation of regulatory standards a) By the end of 2013

b) A fundamental overhaul for banking b) By the end of 2015
regulation c) By the end of 2017
c) A reduction in capital requirements d) By the end of 2020
d) An elimination of cross-border
supervision Answer:: c) By the end of 2017
Answer:: b) A fundamental overhaul for 107) Over what period will capital
banking regulation instruments that no longer qualify as
Common Equity Tier 1 capital or Tier 2
104) What is the purpose of the transitional capital be phased out?
arrangements announced in September
2010 for Basel III? a) 5 years
b) 8 years
a) To speed up the implementation of the c) 10 years
new standards d) 15 years
b) To
o impose stricter regulations on national
authorities Answer: c) 10 years
c) To ensure a smooth recovery of the real
economy 108) When did the higher minimums for
d) To delay the implementation of the Common Equity and Tier 1 capital become
reforms effective?
Answer:: c) To ensure a smooth recovery of a) 2013

the real economy b) 2014
c) 2015
105) How long is the phased d) 2016
implementation period for the
strengthened definition of capital in Basel Answer: c) 2015
III?
a) 2 years
b) 5 years
c) 8 years
d) 10 years
Answer: b) 5 years
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109) What is the purpose of the 5% capital Answer: c) 2016

conservation buffer in Basel III?
113) What does the leverage ratio
a) To restrict payouts when breached to measure?
meet the minimum common equity
requirement a) The ratio of market assets to market
b) To provide additional funds for market liabilities
investments b) The ratio of assets to owners equity
c) To cover unexpected operational losses c) The ratio of short-term
term assets to long-
long
d) To enhance disclosure practices term assets
d) The ratio of liabilities to owners equity
Answer: a) To restrict payouts when
breached to meet the minimum common Answer:: b) The ratio of assets to owners
equity requirement equity
110) When will the 5% capital conservation

buffer become fully effective? 114) When is the Liquidity Coverage Ratio
(LCR) expected to reach 100% according to
a) 1 January 2016 Basel III?
b) 1 January 2017
c) 1 January 2018 a) 1 January 2016
d) 1 January 2019 b) 1 January 2017
c) 1 January 2018
Answer: d) 1 January 2019 d) 1 January 2019
Answer: d) 1 January 2019
111) What is the

e minimum requirement for 115) What is the purpose of the Liquidity
Common Equity Tier in the year 2014? Coverage Ratioo (LCR) introduced by Basel
III?
a) 2%
b) 5% a) To restrict payouts when breached to
c) 4% meet the minimum common equity
d) 5% requirement
b) To provide additional funds for market
Answer: b) 5% investments
c) To ensure banks hold a buffer of high-
high
112) When did the phased implementation quality liquid assets for short
short-term stress
of the leverage ratio begin? scenarios
d) To cover unexpected operational losses
a) 2013
b) 2015 Answer:: c) To ensure banks hold a buffer of
c) 2016 high-quality
quality liquid assets for short
short-term
d) 2017 stress scenarios
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116) When did the phased implementation b) 1 January 2018

of the Liquidity Coverage Ratio (LCR) begin? c) 1 January 2019
d) 1 January 2020
a) 1 January 2014
b) 1 January 2015 Answer: b) 1 January 2018
c) 1 January 2016
d) 1 January 2017 119) Question 16: What is the primary
objective of Basel II reforms?
Answer: b) 1 January 2015
a) To promote competition among banks
117)) Question 15: When is the Net Stable b) To reduce the risk of spill-over
over from the
Funding Ratio (NSFR) expected to become a financial sector to the real economy
minimum standard according to Basel III? c) To encourage excessive leverage in the
banking sector
a) 1 January 2017 d) To maximize profits for banks
b) 1 January 2018
c) 1 January 2019 Answer:: b) To reduce the risk of spill
spill-over
d) 1 January 2020 from the financial sector to the real
economy
Answer: b) 1 January 2018
120) Question 17: When did the G20 leaders
117) Question 14: What is the purpose of commit to strengthening the regulatory
the Net Stable Funding Ratio (NSFR) system for banks and other financial firms?
f
introduced by Basel III?
a) September 2008
a) To restrict payouts when breached to b) September 2009
meet the minimum common equity c) September 2010
requirement d) September 2011
b) To ensure
nsure banks hold a buffer of high
high-
quality liquid assets for short-term
term stress Answer:: b) September 2009
scenarios
c) To promote longer-term
term funding 121) What is the primary intention of Basel
mismatches and encourage stable funding II reforms?
sources
d) To cover unexpected operational losses a) To encourage excessive risk
risk-taking in the
banking sector
Answer: c) To promote longer-term
term funding b) To raise the resilience of individual
ndividual
mismatches and encourage stable funding banking institutions in periods of stress
sources c) To minimize regulatory standards
d) To maximize the flexibility of financial
118) Question 15: When is the Net Stable firms
Funding Ratio (NSFR) expected to become a Answer:: b) To raise the resilience of
minimum standard according to Basel III? individual banking institutions in periods of
a) 1 January 2017 stress
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122) Question 19: When was the 125) Question 24: Which of the following is
comprehensive reform package "Basel III: A one of the options available for computing
global regulatory framework for more capital for credit risk under Basel III?
resilient banks and banking systems"
released? a) Comprehensive Credit Assessment
b) Intermediate Risk Calculation
ulation
a) December 2008 c) Standardised Approach
b) December 2009 d) Generic Capital Estimation
c) December 2010
d) December 2011 Answer:: c) Standardised Approach
Answer: c) December 2010 126) What does AMA stand for in the
context of computing capital for operational
123) What is the primary
imary goal of the capital risk under Basel III?
conservation buffer in Basel III?
a) Advanced Measurement Approach
a) To encourage banks to maximize risk-
risk b) Asset Management Allocation
taking c) Automated Monitoring Assessment
b) To protect the banking sector from d) Actual Margin Assessment
periods of excess credit growth
c) To minimize the level of capital in banks Answer:: a) Advanced Measurement
d) To lower the quality of capital in banks Approach
Answer:: b) To protect the banking sector 127)What

What is the significance of the Internal
from periods of excess credit growth Assessment undertaken by banks for
migration to advanced approaches under
124) What are the three mutually Basel III?
reinforcing pillars of Basel III?
a) It determines
etermines the profit margins for the
a) Minimum capital requirements, banks
Maximum risk exposure, Optimal liquidity b) It assesses the readiness of banks for
management migration
b) Capital leverage, Market risk c) It calculates the minimum capital
management, Regulatory compliance requirement
c) Minimum capital requirements, d) It estimates the market risk exposure
Supervisory review of capital adequacy,
Market discipline Answer:: b) It assesses the readiness of
d) Operational risk assessment, Financial banks for migration
innovation, Corporate governance
Answer:: c) Minimum capital requir

requirements,
Supervisory review of capital adequacy,
Market discipline
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128) Whatt is the minimum Capital to Risk-

Risk
weighted Assets Ratio (CRAR) required for a) Only at the standalone level
banks under Basel III? b) Only at the consolidated (Group) level
c) At both standalone and consolidated
a) 8% (Group) levels
b) 9% d) At the international level
c) 10%
d) 12% Answer:: c) At both standalone and
consolidated (Group) levels
Answer: b) 9%
132) According to Basel III, do banks have
129) What is the significance of the the flexibility to adopt advanced approaches
transitional arrangements provided for for only specific risk categories?
meeting the minimum Basel II capital
pital ratios?
a) Yes, they can adopt advanced approaches
a) They allow banks to exceed the minimum for any single risk category
capital ratios b) No, they must adopt advanced
b) They provide flexibility in implementing approaches for all risk categories
Basel II regulations over time simultaneously
c) They exempt banks from Basel II capital c) Yes, they can adopt advanced approaches
requirements for specific risk categories based on their
d) They only apply to specific risk categories preparedness
d) No, it is mandatory to adopt advanced
Answer:: b) They provide flexibility in approaches for all risk categories
implementing Basel II regulations over time
Answer:: c) Yes, they can adopt advanced
130) Question 29: What is the reason approaches for specific risk ca
categories
behind the deferment of the based on their preparedness
implementation of Basel II norms in India
until April 2021? 133) What does the residual risk represent
in the context of risk management?
a) Global economic recession
b) Regulatory amendments nts by Basel a) Initial risk before any controls
Committee b) The remaining risk after natural risks are
c) Impact of the corona virus pandemic reduced
d) Increased risk appetite in the banking c) Risk associated with operational issues
sector d) The risk of market fluctuations
Answer:: c) Impact of the corona virus Answer:: b) The remaining risk after natural
pandemic risks are reduced
131) At which levels is a bank required to

comply with the capital adequacy ratio
requirements under Basel III?
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134) What is the primary distinction

between going-concern
concern capital and gone-
gone A. Credit risk
concern capital in the regulatory context? B. Operational risk
C. Market interest rate changes
a) Going-concern capital absorbsbs losses in D. Liquidity risk
bankruptcy, while gone-concern
concern capital Answer:: C. Market interest rate changes
absorbs losses in ongoing operations.
b) Going-concern
concern capital absorbs losses in 138) In the calculation of the capital charge
ongoing operations, while gone-concern
concern for market risk, which of the following is not
capital absorbs losses in liquidation. allowed in India except in derivatives and
c) Both going-concern and gone-concern
concern Central Government Securities?
capitall absorb losses in bankruptcy.
d) Both going-concern and gone-concern
concern A. Net long position
capital absorb losses in ongoing operations. B. Net short position
C. Both
h net long and net short positions
Answer: b) Going-concern
concern capital absorbs D. No restrictions on position types
losses in ongoing operations, while gone
gone- Answer:: B. Net short position
concern capital absorbs losses in liquidation.
139) What does the "vertical disallowance"
135) Question
tion 34: What is the minimum component of the capital charge for market
requirement for Total Capital (Tier 1 Capital risk refer to?
plus Tier 2 Capital) as a percentage of Risk-
Risk
Weighted Assets (RWAs) under Basel III? A. Net short position
B. Proportion of matched positions
pos in each
a) 5.5% time-band
b) 7% C. Larger proportion of matched positions
c) 9% across time-bands
d) 10% D. Net charge for positions in options
Answer:: B. Proportion of matched positions
Answer: c) 9% in each time-band
136) Question 35: What is the minimum 140) What does the "horizontal
requirement for
or the Capital Conservation disallowance" component of the capital
Buffer (CCB) under Basel III? charge for market risk involve?
a) 1% A. Net short position

b) 2% B. Proportion of matched positions in each
c) 5% time-band
d) 3% C. Larger proportion of matched positions
across time-bands
Answer: c) 5% D. Net charge for positions in options
Answer:: C. Larger proportion of matched
137) What does the capital charge for positions across time-bands
market risk aim to capture?
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141) In the context of the capital charge for 145) Why is the impact of interest rate
market risk, when is a net charge applied for changes not fully offset in portfolios with
positions in options? derivatives?
A. Always A. Derivatives
atives are ineffective in managing
B. When options are in the money interest rate risk
C. When options are out of the money B. Changes in interest rates for assets and
D. When deemed appropriate liabilities are rarely the same
Answer: D. When deemed appropriate C. Short positions in derivatives neutralize
interest rate changes
142) What risk mitigation benefit do D. Derivatives have no impact on interest
derivatives provide in portfolios? rate fluctuations
Answer:: B. Changes in interest rates for
A. Liquidity risk mitigation assets and liabilities are rarely the same
B. Credit risk mitigation
C. Interest rate risk mitigation 146) In the context of interest rate risk
D. Operational risk mitigation mitigation, what is the role of derivatives
Answer:: C. Interest rate risk mitigation
mitigati when changes in interest rates occur?
143) How are short positions created on A. Fully offset the impact of interest rate
account of exposures to derivatives treated changes
in the computation of capital charge for B. Exacerbate the impact of interest rate
market risk? changes
C. Partially offset the impact of interest rate
A. Ignored in the calculation changes
B. Multiplied to increase the capital charge D. Have no impact on interest rate changes
C. Netted off in the process of algebr
algebraic Answer:: C. Partially offset the impact of
addition interest rate changes
D. Treated as a separate charge
Answer:: C. Netted off in the process of 147) What term is used to describe
describ the risk
algebraic addition accounted for in capital computations
through vertical disallowance of netted
144) What is the effect of netting off short positions?
positions in the computation of capital
charge for market risk? A. Horizontal risk
B. Basis risk
A. Increases the capital charge C. Maturity risk
B. Has no
o effect on the capital charge D. Netting risk
C. Reduces the capital charge Answer: B. Basis risk
D. Creates a separate charge for short
positions
Answer:: C. Reduces the capital charge
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148) How is basis risk accounted for in 152) According to extant regulatory
capital computations? directives, how may short positions arise in
a portfolio?
A. Through horizontal disallowance
B. Through vertical disallowance A. Through both derivatives and short sale
C. Ignored in the calculation of securities
D. Treated as a separate charge B. Only through short sale of securities
securi
Answer:: B. Through vertical disallowance C. Only through derivatives
D. Short positions are not allowed
149) What percentage of disallowance is Answer:: C. Only through derivatives
prescribed within a given maturity band tto
account for basis risk? 153) What is the remaining maturity of the
long position in securities with a general
A. 10% market risk capital charge of Rs. 100 Crores?
B. 20%
C. 5% A. 2 years
D. 30% B. 5 years
Answer: C. 5% C. 6 months
D. 1 year
150) How is the impact of changes in Answer: A. 2 years
interest rates across various maturities
accounted for in capital computations? 154) What is the general market risk capital
charge for the long position in securities
A. Through vertical disallowance with a remaining maturity of 5 years?
B. Through horizontal disallowance
C. Ignored in the calculation A. Rs. 50 Crores
D. Treated as a separate charge B. Rs. 100 Crores
Answer: B. Through horizontal C. Rs. 150 Crores
disallowance D. Rs. 450 Crores
Answer: D. Rs. 450 Crores
151) What range of disallowance is
prescribed across maturity bands to account 155) In the given portfolio, what is the
for changes in interest rates in capital remaining maturity of the derivatives
computations? creating a short position with a general
market risk capital charge of Rs. 50 Crores?
A. 10% to 50%
B. 20% to 70% A. 6 months
C. 30% to 100% B. 1 year
D. 5% to 25% C. 2 years
Answer: C. 30% to 100% D. 5 years
Answer: C. 2 years
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156) Whatat is the general market risk capital

charge for a long position with a maturity of 160) What adjustments are made in the
2 years? computation of the capital charge for
general market risk?
A. Rs. 100 Crores
B. Rs. 50 Crores A. Horizontal disallowance
C. Rs. 150 Crores B. Vertical disallowance
D. Rs. 200 Crores C. Both horizontal and vertical disallowance
Answer: A. Rs. 100 Crores D. No adjustments are made
Answer:: C. Both horizontal and vertical
vertica
157) What is the general market risk capital disallowance
charge for a short position with a maturity
of 6 months? 161) What is the zone of the long position
with a maturity of 2 years and a general
A. Rs. 100 Crores market risk capital charge of +100 Cr?
B. Rs. 50 Crores
C. Rs. -100 Crores A. Zone 1
D. Rs. -50 Crores B. Zone 2
Answer: C. Rs. -100 Crores C. Zone 3
D. Zone 4
158) What is the algebraic sum of the Answer: B. Zone 2
general market risk capital charge for all
positions in the portfolio before 162) Which adjustment is made for
adjustments? positions in the same time band in the
computation of general market risk capital
A. Rs. 500 Crores charge?
B. Rs. 400 Crores
C. Rs. 200 Crores A. Horizontal disallowance
D. Rs. 0 Crores B. Vertical disallowance
Answer: B. Rs. 400 Crores C. No adjustments are made
D. Separate capital charge
159) How is the capital charge for general Answer:: B. Vertical disallowance
market risk of the portfolio computed?
163) What is the zone of the short position
A. Sum of capital charges for all positions with
th a maturity of 6 months and a general
without adjustments market risk capital charge of -100 Cr?
B. Algebraic sum of capital charges for all
positions with adjustments A. Zone 1
C. Average of capital charges for all B. Zone 2
positions C. Zone 3
D. Maximum of capital charges for all D. Zone 4
positions Answer: A. Zone 1
Answer:: B. Algebraic sum of capital charges
for all positions with adjustments
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164) What is the capital charge adjustment 168) What is the adjustment made for Zone
made for positions in Zone 2? 2's net position of -50
50 Cr after vertical
disallowance?
A. +100 Cr
B. -50 Cr A. +50 Cr
C. +50 Cr B. -50 Cr
D. No adjustment C. + 5 Cr
Answer: D. No adjustment D. - 5 Cr
Answer: C. + 5 Cr
165) What does "Same time band means
Vertical disallowance" imply in the given 169) In the
e context of horizontal
context? disallowance, what does "Different time
band means Horizontal disallowance"
A. Positions in the same time band are imply?
excluded from the computation
B. Positions in the same time band are A. Positions in the same time band are
adjusted horizontally adjusted horizontally
C. Positions in the same time band have no B. No adjustments are made for positions in
impact on capital charge different time bands
D. Positions in the same time band are C. Horizontal disallowance
ance is applied to
adjusted vertically positions in different time bands
Answer:: D. Positions in the same time band D. Positions in different time bands are
are adjusted vertically excluded from the computation
Answer:: C. Horizontal disallowance is
166) In the context of vertical disallowance, applied to positions in different time bands
what does "Zone 1 - 100" represent?
170) What is the criterion for adjusting a
A. Capital charge for Zone 1 shortt position with the nearest zone having
B. Net position for Zone 1 a long position in the context of horizontal
C. Vertical disallowance for Zone 1 disallowance?
D. Amount netted for Zone 1
Answer:: B. Net position for Zone 1 A. Similar capital charge
B. Similar net position amount
167) What is the vertical disallowance for C. Similar vertical disallowance
Zone 2, given a netted amount of 50 Cr and D. Similar maturity zone with a long position
a 5% disallowance rate? Answer: D. Similar maturity zone with a
long position
A. 1.5 Cr
B. 5 Cr
C. 5 Cr
D. 10 Cr
Answer: B. 5 Cr
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171) In the context of horizontal A. Rs. 400 Crores

disallowance, what is the new net position B. Rs. 47 50 Crores
amount for Zone 1 after adjustment? C. Rs. 500 Crores
D. Rs. 550 Crores
A. -50 Cr Answer: B. Rs. 47 50 Crores
B. 0
C. +50 Cr 176) What formula is used to determine the
D. +100 Cr allowable reduction in exposure for loans
Answer: B. 0 and advances secured by bank deposits
under lien?
172) What is the horizontal disallowance for
Zone 1, given a netted amount of 50 Cr and A. Allowable Reduction = C * [ 1 –Hfx] * Mf
a 40% disallowance rate? B. Allowable Reduction = E * He – [C x (1-Hc-
Hf) * Mf]
A. 10 Cr C. Allowable Reduction = C * [ 1 –Hfx]
B. 20 Cr D. Allowable Reduction = E * He – [C x (1-
C. 40 Cr Hc- Hf)]
D. 50 Cr Answer:: A. Allowable Reduction = C * [ 1 –
Answer: B. 20 Cr Hfx] * Mf
173) What is the new net position amount 177) What does "Hfx" represent in the
for Zone 3 after horizontal disallowance? formula for allowable reduction in exposure
for bank deposits under lien?
A. +400 Cr
B. +450 Cr A. Exposure amount
C. +500 Cr B. Maximum allowable reduction
D. +550 Cr C. Foreign exchange rate
Answer: A. +400 Cr D. Financial collateral
Answer:: C. Foreign exchange rate
174) What is the total horizontal
disallowance for the portfolio after 178) How is the allowable reduction
adjustments? calculated when it is more than the amount
of exposure for loans secured by bank
A. 50 Cr deposits?
B. 70 Cr
C. 90 Cr A. It is reduced to zero
D. 120 Cr B. It equals the amount of exposure
Answer: B. 70 Cr C. It remains unchanged
D. It is doubled
175) What is the total capital charge for Answer: B. It equals the amount of
general market risk for the portfolio after exposure
adjustments for vertical
ertical and horizontal
disallowance?
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CHAPTER 14 -: Market Risk
1) What is the initial capital raised by Mr. X A) Portfolio value exceeds capital, indicating
for investment in the market? low market risk.
B) Portfolio value equals capital, indicating
A) Rs. 5,000 moderate market risk.
B) Rs. 10,000 C) Portfolio value is less than capital,
C) Rs. 15,000 indicating high market risk.
D) Rs. 20,000 D) Market risk is unrelated to the capital
Answer: B) Rs. 10,000 and portfolio value.
Answer:: B) Portfolio value equals capital,
2) How many shares
hares of ABC Ltd. did Mr. X indicating moderate market risk.
purchase with his initial capital of Rs.
10,000?
6) What is the initial total capital (capital +
A) 50 shares borrowings) available to Mr. X for
B) 75 shares investment?
C) 100 shares
D) 125 shares A) Rs. 10,000
Answer: C) 100 shares B) Rs. 50,000
C) Rs. 100,000
3) What is the market value of Mr. X's D) Rs. 110,000
portfolio after purchasing 100 shares of ABC Answer: D) Rs. 110,000
Ltd. at Rs. 100 per share?
7) If the share price drops by 5%, what is the
A) Rs. 5,000 new share price?
B) Rs. 10,000
C) Rs. 15,000 A) Rs. 47.5
D) Rs. 20,000 B) Rs. 50
Answer: B) Rs. 10,000 C) Rs. 90.25
D) Rs. 95
4) Calculate the price per share of ABC Ltd. Answer: D) Rs. 95
that Mr. X bought.
8) What is the new total capital after the
A) Rs. 50 share price drop and considering the
B) Rs. 75 borrowings?
C) Rs. 100
D) Rs. 125 A) Rs. 50,000
Answer: C) Rs. 100 B) Rs. 95,000
C) Rs. 100,000
5) What is the relationship between M Mr. X's D) Rs. 105,000
capital and the value of his portfolio, Answer: C) Rs. 100,000
indicating market risk?
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9) How much capital does Mr. X lose due to C) Price Risk

the adverse market movement (50% D) Downside Potential Risk
reduction)? Answer:: B) Market Liquidity Risk
A) Rs. 5,000 14) What would be the consequence for Mr.

B) Rs. 10,000 X if the share price of ABC Ltd. had fallen by
C) Rs. 50,000 10%?
D) Rs. 55,000
Answer: B) Rs. 10,000 A) Reduced liquidity risk
B) Increased profit motivation
10) What is the maximum amount Mr. X can C) Wiped out entire capital
borrow based on his initial capital? D) Improved market liquidity
Answer:: C) Wiped out entire capital
A) Rs. 5,000
B) Rs. 45,000 15) Why does Mr. X need to assess the
C) Rs. 90,000 possible downside potential of the share
D) Rs. 100,000 price?
Answer: C) Rs. 90,000
A) To increase market liquidity
quidity
11) What is the term used to describe the B) To enhance profit motivation
risk associated
ciated with adverse movement in C) To understand price risk
the price of a security? D) To mitigate the risk of reduced liquidity
Answer:: C) To understand price risk
A) Asset Liquidity Risk
B) Market Liquidity Risk 16) What should Mr. X establish before
C) Price Risk entering the business to manage risks and
D) Profit Motivation Risk measure possible downsidede potential?
Answer: C) Price Risk
A) A trading book
12) What risk does Mr. X face when there is B) A profit motivation plan
a reduced liquidity in the market for a C) A risk management framework
specific security he holds? D) A proprietary position strategy
Answer:: C) A risk management framework
B) Market Liquidity Risk 17) What is included in a bank's trading
C) Downside Potential Risk book?
D) Profit Motivation Risk A) All customer deposits
Answer: A) Asset Liquidity Risk B) Only long-term
m investments
C) Proprietary positions in financial
13) Which risk is associated with poor instruments
overall market liquidity, impacting the D) Short-term loans
ability to buyy or sell securities easily?
Answer:: C) Proprietary positions in financial
instruments
B) Market Liquidity Risk
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18) Which of the following is NOT included A) Credit Risk

in a bank's trading book as per the provided B) Operational Risk
information? C) Market Risk
D) Legal Risk
A) Debt Securities Answer: C) Market Risk
B) Equity
C) Real Estate 23) What is the primary focus
cus of Asset
D) Foreign Exchange Liquidity Risk within a bank's trading book?
Answer: C) Real Estate
A) Short-term
term price differences
19) What market exposure risks do banks B) Short-term
term market volatilities
face in their trading book? C) Availability of buyers for specific
securities
A) Only credit risks D) Overall market stability
B) Only operational risks Answer:: C) Availability of buyers for specific
C) Only liquidity risks securities
D) Various risks including market exposure
exp
Answer:: D) Various risks including market 24) Which type of liquidity risk is associated
exposure with the overall market's ability to buy or
sell securities easily?
20) Which category of financial instruments
might NOT be permitted in the trading book A) Asset Liquidity Risk
in the mentioned country? B) Market Liquidity Risk
C) Operational Liquidity Risk
A) Debt Securities D) Credit Liquidity Risk
B) Equity Answer:: B) Market Liquidity Risk
C) Foreign Exchange
D) Commodities 25) How do adverse changes in market
Answer: D) Commodities variables impact a bank's earnings and
capital?
21) What is the primary intention behind
holding proprietary positions in a bank's A) Positively
trading book? B) Negatively
C) No impact
A) Long-term investment D) Depends on the risk type
B) Short-term
term benefit from price differences Answer: B) Negatively
C) Hedging for the future
D) Ensuring market stability
Answer: B) Short-term benefitit from price
differences
22) What type of risks are associated with

adverse changes in market variables in a
bank's trading book exposure?
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26) What is the primary concern of Market B) Longer liquidation period increases
Risk in banking? deviations
C) Liquidation period is irrelevant to
A) Adverse deviations in the mark-to
to-market deviations
value D) Liquidation period eliminates deviations
B) Asset-Liability mismatch Answer:: B) Longer liquidation period
pe
C) Counterparty risks increases deviations
D) Funding liquidity risk
Answer:: A) Adverse deviations in the mark
mark- 30) Why is market risk limited to the
to-market value liquidation period?
27) How is the market risk different from A) To increase deviations

funding liquidity risk? B) To eliminate deviations
C) To reduce deviations
A) Markett risk involves adverse market D) To hedge future changes in value
movements; funding liquidity risk involves Answer:: D) To hedge future changes in
asset-liability mismatch. value
B) Market risk is related to credit risks;
funding liquidity risk is related to
counterparty risks. 31) What factor
actor influences the liquidation
C) Market risk is not applicable in banking; period in the context of market risk?
funding liquidity
uidity risk is the primary concern.
D) Both market risk and funding liquidity A) Market movements
risk are the same. B) Type of instrument
Answer:: A) Market risk involves adverse C) Operational risks
market movements; funding liquidity risk D) Monitoring deficiencies
involves asset-liability mismatch. Answer:: B) Type of instrument
28) What is the critical factor in assessing

assess 32) What is the focus of market risk in terms
adverse deviations in the context of market of causes of losses?
risk?
A) Causes other than market movements
A) Counterparty risk B) Operational risks
B) Mark-to-market value C) Monitoring deficiencies
C) Asset liquidity risk D) Liquidity risks
D) Funding liquidity risk Answer:: A) Causes other than market
Answer: B) Mark-to-market value movements
29) How does the period of liquidation

impact the possibilities of adverse
deviations in market risk?
A) Longer liquidation period reduces

deviations
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33) What risk category is associated with 37) What risks are involved in the process of
deficiencies in monitoring the market liquidation?
portfolio leading
eading to deviations until
liquidation occurs? A) Only market liquidity risk
B) Only asset liquidity risk
A) Operational Risk C) Both asset and market liquidity risks
B) Market Risk D) Price volatility risk
C) Credit Risk Answer:: C) Both asset and market liquidity
l
D) Liquidity Risk risks
Answer: A) Operational Risk
38) How does price volatility differ in high-
high
34) What does trading liquidity refer to? liquidity and poor-liquidity
liquidity situations?
A) Ability to attract market attention A) Higher in high-liquidity

liquidity situations
B) Ability to freely transactt at unreasonable B) The same in both situations
prices C) Lower in high-liquidity
liquidity situations
C) Ability to affect market prices D) Unaffected by liquidity
D) Ability to transact at reasonable prices Answer: C) Lower in high-liquidity
liquidity
without affecting market prices situations
Answer:: D) Ability to transact at reasonable
prices without affecting market prices 39) What distinguishes 'pure' market risk
from market liquidity risk?
35) How is trading liquidity risk defined?
A) Counter-party quality
A) Ability to attract market participants B) Changes in market parameters
B) Ability to affect market prices positively C) Asset liquidation risk
C) Ability to transact at unreasonable prices D) General liquidity crunch
D) Ability to transact without attracting Answer:: B) Changes in market parameters
attention
Answer:: D) Ability to transact without 40)) What does asset liquidation risk refer
attracting attention to?
A) Lack of trading liquidity in a specific asset

36) What does trading liquidity enable B) General liquidity crunch in the market
without compromising on counter--party C) Compromising on counter-party
counter quality
quality? D) Adverse deviations in prices
A) High market volatility Answer:: A) Lack of trading liquidity in a

B) Transacting without attracting attention specific asset
C) Compromising on counter-party
party quality
D) Asset and market liquidity risks
Answer: B) Transacting
cting without attracting
attention
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B) By decreasing risk-free
free rate
41) 6. When does market liquidation risk C)) By factoring it as addons to the risk-free
risk
occur? rate
D) By eliminating risk-free
free rate
A) Lack of trading liquidity in a specific asset Answer:: C) By factoring it as addons to the
B) General liquidity crunch in the market risk-free rate
C) High market volatility
D) Changes in market parameters 46) What happens to the spread over the
Answer:: B) General liquidity crunch in the risk-free
free rate when the credit risk level is
market lower?
42) What does the market consider when A) It increases

evaluating credit risk of issuers and B) It decreases
borrowers? C) It remains unchanged
D) It becomes irrelevant
A) Trading volume Answer: B) It decreases
B) Market liquidity
C) Value of credit risk 47) 6. How does a decline in the credit
D) Changes in market parameters rating of a financial instrument affect its
Answer: C) Value of credit risk price?
43) How is credit risk of traded

raded debts, such A) Increases the price
as bonds and debentures, indicated in the B) Decreases the price
market? C) Has no effect on the price
D) Eliminates the instrument from the
A) Trading volume market
B) Credit Rating Answer:: B) Decreases the price
C) Market liquidity
D) Risk-free rate
Answer: B) Credit Rating 48) What characterizes settlement risk in a
market transaction?
44) What does the credit rating of a
financial instrument indicate? A) One party paying money and receiving
financial papers
A) Market liquidity B) Both parties paying money and receiving
B) Default probability financial papers
C) Changes in market parameters C) Neither party paying money nor receiving
D) Trading volume financial papers
Answer: B) Default probability D) Monetary authorities overseeing the
transaction
45) How does the market factor in credit Answer:: A) One party paying money and
risk when pricing financial instruments? receiving financial papers
A) By increasing risk-free rate

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49) What happens if either party in a market A) Risk Measurement

transaction defaults in completing
mpleting the B) Risk Monitoring and Control
settlement? C) Risk Identification
D) Risk Mitigation
A) Both parties suffer Answer:: C) Risk Identification
B) The defaulting party suffers
C) The non-defaulting
defaulting party suffers 54) Which question is addressed in the "Risk
D) No impact on either party Measurement" stage of the market risk
Answer: C) The non-defaulting
defaulting party suffers management framework?
50) How can settlement risk lead to A) What are the risks?
systemic risk in the market? B) How much could the price change?
C) Can we reduce the risk?
A) By increasing market liquidity D) What would be the effect on profit and
B) By eliminating counterparty risk loss?
C) By causing disruptions across the entire Answer:: B) How much could the price
system change?
D) By reducing transaction volume
Answer:: C) By causing disruptions across 55) In the context of market risk
the entire system management, what does the "Risk
Monitoring and Control" stage aim to
51) What does the Reserve Bank of Indi
India achieve?
use to obviate settlement risk in India?
A) Identify risks
A) Central Counter Parties B) Measure risks
B) Risk-free settlement systems C) Monitor and control price risk
C) Real Time Gross Settlement System D) Mitigate risks
(RTGS) Answer:: C) Monitor and control price risk
D) Clearing Corporation of India
Answer:: C) Real Time Gross Settlement 56) What is the primary focus of the "Risk
System (RTGS) Mitigation" stage in market
et risk
management?
52) In markets where RTGS
TGS cannot be used
for settlement, what is used to mitigate A) Identifying risks
settlement risk? B) Measuring risks
C) Reducing risks
A) Counterparty risk D) Monitoring and controlling risks
B) Monetary authorities Answer: C) Reducing risks
C) Clearing Corporation of India
D) Risk-free settlement systems
Answer:: C) Clearing Corporation of India
53) What is the first step

p in the market risk
management framework?
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57) How are the management processes for risk identification

ation and monitoring
market risk management subdivided? processes?
A) Into Risk Measurement and Monitoring

nitoring A) Risk pricing
B) Into Risk Identification and Mitigation B) Organizational structure
C) Into Risk Monitoring and Control C) Limits and triggers
D) Into Risk Identification, Measurement, D) Setting up models of analysis
Monitoring, and Mitigation Answer:: B) Organizational structure
Answer:: D) Into Risk Identification,
Measurement, Monitoring, and Mitigation 61) Which organizational function is
essential for carrying out the functions
58) What are the key components of an required
d for market risk management?
effective market risk management
framework in a bank? A) Risk pricing department
B) Organizational structure department
A) Risk identification, setting up of limits C) Models of analysis department
and triggers, risk monitoring, models of D) Risk management department
analysis, risk reporting Answer:: D) Risk management department
B) Risk pricing, risk identification, risk
monitoring, organizational structure
ructure 62) What role do financial instruments play
C) Setting up of limits and triggers, risk in market risk
sk management?
reporting, organizational structure, risk
pricing A) They set limits and triggers
D) Models of analysis, risk monitoring, B) They determine the risk pricing
organizational structure, risk identification C) They derive their price from market
Answer:: A) Risk identification, setting up of variables
limits and triggers, risk
isk monitoring, models D) They establish the organizational
of analysis, risk reporting structure
Answer:: C) They derive their price from
59) Why do market risk management market variables
processes not include a risk pricing process?
A) Market variables do not influence 63) Who plays a major

ajor role in the
financial instrument prices management of market risk in banks?
B) Financial instruments derive their price
from market variables A) Operational staff
C) Risk pricing is irrelevant in banking B) Middle management
D) Financial instruments have fixed prices C) Top management
Answer:: B) Financial instruments derive D) External consultants
their price from market variables Answer:: C) Top management
60) What is needed for effective

management of market risk in addition to
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64) From where does the successful 68) 6. What does the organization structure
implementation of risk management need to facilitate for successful risk
processes typically
ly emanate in a bank? management implementation?
A) Operational staff A) Top-down

down risk management
B) Middle management B) Balanced view on risks and returns
C) External consultants C) External consultants'' recommendations
D) Top management D) Operational staff involvement
Answer: D) Top management Answer:: B) Balanced view on risks and
returns
65) What is the main challenge in managing
market risk? 69) Who has the overall responsibility for
the management of risks in Market Risk
A) Setting risk limits Management organization?
B) Facilitating risk and business policie
policies
C) Ensuring consistent risk-adjusted
adjusted returns A) ALM Support Group
D) Implementing economic measures of risk B) Middle Office
Answer:: B) Facilitating implementation of C) Risk Management
agement Committee
risk and business policies D) Board of Directors
Answer:: D) Board of Directors
66) According to modern best practices,
how are risk limits typically set? 70) What is the role of the Board of
Directors in market risk management?
A) Based on market variables
B) Based on external benchmarks A) Setting market prices
C) Based on economic measures of risk B) Deciding risk management policy and
D) Based on historical data setting limits
Answer:: C) Based on economic measures of C) Managing day-to-dayday operati
operations
risk D) Conducting market research
Answer:: B) Deciding risk management
67) What is the main consideration when policy and setting limits
setting risk limits according to modern best
practices? 71) Which committee is responsible for
overseeing the risk management policies
A) Maximizing
aximizing risk without considering and procedures in a Market Risk
returns Management organization?
B) Achieving the highest risk-adjusted
adjusted return
within available capital constraints A) ALM Support Group
C) Ignoring the constraints of available B) Risk Management Committee
capital C) Middle Office
D) Setting limits based on market variables D) Asset-Liability
Liability Management Committee
Answer:: B) Achieving the highest risk-
ris (ALCO)
adjusted return within available capital Answer:: B) Risk Management Committee
constraints
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72) What is the primary responsibility of the 76) What is the primary responsibility of the
Asset-Liability
Liability Management Committee Asset-Liability
C
(ALCO) in market risk management? (ALCO)?
A) Overseeing asset-liability
liability management
A) Deciding
iding risk management policy B) Setting guidelines for market risk
B) Setting market prices management
C) Managing day-to-day
day operations C) Conducting market research
D) Overseeing asset-liability
liability management D) Manning the risk management processes
Answer: D) Overseeing asset-liability
liability Answer:: A) Overseeing asset-liability
asset
management management
73) Who is responsible for articulating 77) What does ALCO decide on
o in terms of
market risk management policies and business strategy?
procedures and setting review mechanisms?
A) Setting up prudential limits
A) ALM Support Group B) Ensuring robustness of risk measurement
B) Middle Office models
C) Risk Management Committee C) Achieving consistent implementation of
D) Board of Directors risk and business policies
Answer: D) Board of Directors D) Periodically reviewing market risk
management reporting
74) What level of the organization is the Answer: C) Achieving consistent
Risk Management Committee situated? implementation of risk and business policies
A) Operational level 78) Which committee is responsible for

B) Executive level ensuring the robustness of measurement of
C) Board level subcommittee risk models?
D) Middle management level
Answer:: C) Board level subcommittee A) Asset-Liability
(ALCO)
75) What is one of the responsibilities of the B) Middle Office
Risk Management Committee in terms of C) Board of Directors
market risk management reporting? D) Risk Management Committee
Answer:: D) Risk Management Committee
A) Setting market prices
B) Ensuring proper manning for the 79) Which function is responsible for
processes product pricing of deposits and advances in
C) Periodically reviewing prudential limits Asset-Liability
Liability Management (ALM)?
D) Conducting market research
Answer: C) Periodically reviewing A) ALCO
prudential limits B) ALM Support Group
C) Middle Office
D) Risk Management Committee
Answer: A) ALCO
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80) What does the ALM Support Group Answer: B) ALCO

analyze, monitor, and report to in the Asset
Asset-
Liability Management (ALM) framework? 84) What is the first step in risk
A) Board of Directors management concerning products and
B) ALCO transactions?
C) Middle Office
D) Risk Management Committee A) Risk mitigation
Answer: B) ALCO B) Risk identification
C) Risk monitoring
81) What is the responsibility
ty of the Middle D) Risk reporting
Office in the context of Asset-Liability
Liability Answer:: B) Risk identification
Management (ALM)?
85) How does the approach to dealing with
A) Product pricing risks differ between standard and non-
non
B) Independent market risk monitoring, standard products?
measurement, analysis, and reporting to
ALCO A) There is no difference
C) Analyzing effects of market changes B) Non-standard
standard products have fewer rrisks
D) Recommending action needed in case of C) Standard products have fewer risks
market changes D) The approach differs for standard and
Answer:: B) Independent market risk non-standard products
monitoring, measurement, analysis, and Answer:: D) The approach differs for
reporting to ALCO standard and non-standard
standard products
82) What is one of the functions of ALM 86) What provides guidance for risk-taking
risk
Support Group in the Asset-Liability
Liability at the transaction level in the general
ge
Management framework? approach to risk management?
A) Product pricing A) Corporate level

B) Independent market risksk monitoring B) Product Programme
C) Analyzing effects of market changes C) Risk-Taking Units
D) Reporting to the Board of Directors D) Non-standard products
Answer:: C) Analyzing effects of various Answer: A) Corporate level
possible changes in market variables and
recommending action needed 87) What is the role of a 'Product
Programme' in risk management for
83) Who is responsible for articulating the standard products?
interest rate
ate view of the bank in Asset-
Asset
Liability Management (ALM)? A) Mitigating risks
B) Identifying risks
A) ALM Support Group C) Monitoring risks
B) ALCO D) Approving risks
C) Middle Office Answer: C) Monitoring risks
D) Risk Management Committee
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A) Screening procedures
88) Where do Risk-Taking
Taking Units operate B) Product Transaction Memorandum
within? C) Risk-taking guidelines
D) All of the above
A) Corporate level Answer: D) All of the above
B) Non-standard products
C) Standard products 93) What does the 'Product Programme'
D) Approved 'Product Programme' provide guidelines on in terms of risk
Answer: D) Approved
oved 'Product Programme' taking?
89) What does a 'Product Programme' A) Risk-taking procedures

define for all aspects of a product? B) Risk-taking limits
C) Product-wise
wise limit on exposure
A) Corporate-level guidelines D) Market risk measurement
B) Market risk measurement Answer: B) Risk-taking
taking limits
C) Product Transaction Memorandum
D) Screening procedures 94) What is the
e market risk management
Answer:: B) Market risk measurement framework heavily dependent upon?
90) In addition to defining procedures, A) Qualitative measures of risk

limits, and controls, what does a 'Product B) Quantitative measures of risk
Programme' specify for market risk? C) Market value variations
D) Risk elements
A) Corporate-level guidelines Answer:: B) Quantitative measures of risk
B) Product-wise limit on exposure
C) Screening procedures 95) What do market risk measures seek to
D) Product Transaction Memorandum capture
ture in the context of the framework?
Answer: B) Product-wise
wise limit on exposure
A) Variations in market value
91) What temporary basis can new or non
non- B) Qualitative risk factors
standard products operate under while a C) Uncertainties in risk elements
full 'Market Risk Product Programme' is D) Portfolio diversity
being prepared? Answer:: A) Variations in market value
A) Corporate-level guidelines 96) What do market risk measures provide

B) Product Transaction Memorandum in a transaction or portfolio?
ortfolio?
C) Market risk measurement
D) Screening procedures A) Subjective measure of risk
Answer: B) Product Transaction B) Objective measure of risk
Memorandum C) Variations in market value
D) Uncertainties in risk elements
92) What should products approved at the Answer:: B) Objective measure of risk
corporate level provide for?
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97) What are market risk measures based 101) How does a change in interest rate
on? affect the market value of bonds and
forward foreign exchange in a portfolio?
A) Market value variations
B) Sensitivity
tivity and downside potential A) It has no effect
C) Qualitative risk factors B) It decreases market value
D) Portfolio diversity C) It increases market value
Answer:: B) Sensitivity and downside D) It diversifies the portfolio
potential Answer:: C) It increases market value
98) What do market risk measures aim to 102) What may result in increased market
capture in uncertainties associated with risk price?
elements?
A) Decreased demand
A) Objective measures B) Increased liquidity
B) Portfolio diversity C) Increased supply
C) Variations in market value D) Decreased interest rates
D) Qualitative risk factors Answer:: B) Increased liquidity
Answer:: C) Variations in market value
103) What is an example of a market
99) What does sensitivity measure in the parameter mentioned in the context of
context of market risk management? sensitivity?
A) Variations in market value A) Portfolio diversity

B) Deviation of market price due to unit B) Variations in market value
movement of a single market parameter C) Interest rate
C) Portfolio diversity D) Qualitative risk factors
D) Qualitative risk factors Answer: C) Interest rate
Answer:: B) Deviation of market price due
to unit movement of a single market 104) What is the primary concern of the
parameter management of market risk?
100) What are examples of market A) How much can we gain?

parameters that drive market values? B) How much can we lose?
C) How to diversify the portfolio?
A) Qualitative risk factors D) How to increase market value?
B) Portfolio diversity Answer:: B) How much can we lose?
C) Supply-demand
demand position, interest rate,
market liquidity, inflation, exchange rate,
stock prices, etc.
D) Variations in market value
Answer: C) Supply-demand
demand position,
interest rate, market liquidity, inflation,
lation,
exchange rate, stock prices, etc.
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105) What does VaR stand for in the context C) Implementing risk and business policies
polici
of market risk management? simultaneously
D) Ignoring risk and business policies
A) Variable and Risk Answer:: C) Implementing risk and business
B) Value at Reward policies simultaneously
C) Value at Risk
D) Volatility and Returns 110) What is the primary focus of risk
Answer: C) Value at Risk monitoring and control?
106) How does VaR attempt to modify the A) Maximizing risk

question about potential losses? B) Minimizing risk
C) Implementing business policies
poli
A) By increasing the probability of losses D) Setting market risk limits
B) By altering the question Answer: B) Minimizing risk
C) By diversifying the portfolio
D) By reducing the probability of losses 111) How are market risk limits set or
Answer:: B) By altering the question controlled in risk monitoring and control?
107) What is the possibility that VaR A) Based on historical data

acknowledges in terms of potential losses? B) Based on external benchmarks
C) Based on the economic measures of risk
A) High probability of losing everything D) Ignoring
ring economic measures of risk
B) Low probability of losing everything Answer:: C) Based on the economic
C) Certainty of losing everything measures of risk
D) Possibility of gaining everything
Answer:: B) Low probability of losing 112) What does controlling market risk
everything involve in terms of the value of a given
portfolio?
108) What is the key question that VaR aims
to address? A) Maximizing value
B) Minimizing value
A) How much can we gain? C) Keeping variations within given bounda
boundary
B) How much can we lose? values
C) How to maximize returns? D) Ignoring variations in value
D) How to minimize risk? Answer:: C) Keeping variations within given
Answer:: B) How much can we lose? boundary values
109) What does risk monitoring and control

involve in terms of risk and business
policies?
A) Implementing only risk policies

B) Implementing business policies only
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113) How is controlling market risk achieved B) Stressed situations

in risk monitoring and control? C) Both normal and stressed situations
D) Portfolio size
A) Ignoring risk limits Answer: C) Both normal and stressed
B) Taking actions on limits situations
C) Setting unlimited risk
D) Setting strict limits 118) What is an important component of
Answer:: B) Taking actions on limits risk monitoring and management related to
portfolio valuation?
114) What helps achieve control in risk
monitoring and management by limiting A) Ignoring mark-to-market
roles and authority? B) Defining policy for mark-to
to-market
C) Limit monitoring
A) Limits structure D) Resource allocation
B) Policy guidelines Answer: B) Defining policy for mark-to-
mark
C) Unbundling procedures market
D) Portfolio size guidelines
Answer: B) Policy guidelines 119) What is the primary purpose of risk
reporting in a bank?
115) What is part of the process for
achieving control in risk management? A) To confuse stakeholders
B) To communicate risk across different
A) Unbundling products levels
B) Defining policy for mark-to-market
market C) To conceal risks
C) Establishing limits structure D) To minimize risk
D) Ignoring system and procedures Answer:: B) To communicate risk across
Answer: C) Establishing
blishing limits structure different levels
116) What helps capture all risks in products 120) What are the characteristics of senior
and transactions in risk monitoring and management reports in terms of
management? importance?
A) Portfolio size guidelines A) Regular and in time, including highlights,

B) System and procedures to unbundle with concise commentary
C) Limits structure B) Irregular and delayed, excluding
D) Performance measurement system highlights, with lengthy commentary
Answer: B)) System and procedures to C) Irregular
ular and concise, excluding
unbundle highlights, with concise commentary
D) Regular and in time, excluding highlights,
117) What does the system for estimating with lengthy commentary
portfolio risk consider in risk monitoring and Answer:: A) Regular and in time, including
management? highlights, with concise commentary
A) Only normal situations

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121) What should senior management 125) How is risk mitigation achieved in
reports reasonably be in terms of accuracy? market risk?
A) Highly accurate A) By increasing volatility

B) Moderately accurate B) By adopting strategies that eliminate
elimin or
C) Reasonably accurate reduce portfolio volatility
D) Minimally accurate C) By ignoring volatility
Answer: C) Reasonably accurate D) By maximizing upside potential
Answer:: B) By adopting strategies that
eliminate or reduce portfolio volatility
122) What should senior management
reports include in terms of portfolio risk 126) What is one of the issues associated
concentrations and exceptional events? with risk mitigation measures?
A) Only portfolio risk concentrations A) Increased

creased upside potential
B) Only exceptional events B) Increased counterparty risk
C) Both portfolio risk concentrations and C) Reduced downside variability
exceptional events D) Increased profit potential
D) Neither portfolio risk concentrations nor Answer:: C) Reduced downside variability
exceptional events
Answer: C) Both portfolio risk 127) What do risk mitigation strategies
concentrationss and exceptional events involving a counterparty always come with?
123) What is the preferred style of A) Increased profit potential

commentary in senior management B) Reduced counterparty risk
reports? C) Increased upside potential
D) Counterparty risk
A) Verbose Answer:: D) Counterparty risk
B) Written
C) Visual 128) When is counterparty risk substantially
D) Lengthy reduced in risk mitigation strategies?
Answer: B) Written
A) When the counterparty is unknown
124) What is instrumental for both profits B) When n the counterparty is an established
and risk in the context of market risk? 'Exchange' or a central counterparty
C) When counterparty risk is ignored
A) Consistency D) When profit potential is maximized
B) Volatility of financial instruments Answer:: B) When the counterparty is an
C) Predictability established 'Exchange' or a central
D) Market liquidity counterparty
Answer: B) Volatility of financial
instruments
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129) How is the volatility

olatility of a portfolio of A) Increasing portfolio BPV
financial instruments determined? B) Adding bonds with higher BPVs
C) Adding bonds with lower BPVs
A) By the market D) Ignoring portfolio BPV
B) By individual instruments Answer:: C) Adding bonds with lower BPVs
C) By ignoring market factors
D) By maximizing profit potential 134) If another bond with a BPV of 205 is
Answer: A) By the market added to the portfolio, what will be the
th new
BPV of the portfolio?
130) What does BPV stand for in the context
of risk mitigation strategies? A) Rs. 675
B) Rs. 205
A) Bond Portfolio Variation C) Rs. 440
B) Bond Price Volatility 135) D) Rs. 36 70
C) Bond Profit Value A) Answer: D) Rs. 36 70
D) Bond Portfolio Index
Answer: B) Bond Price Volatility 136) How can portfolio duration be
increased according to the strategies
131) If a portfolio has two bonds A and B discussed?
with BPVs of Rs. 675 and Rs. 205
respectively, what is the
he portfolio BPV if A) By reducing low-duration
duration instruments
they are equally weighted? B) By adding higher-duration
ration instruments
C) By selling higher-duration
A) Rs. 675 D) Both B and C
B) Rs. 205 Answer: D) Both B and C
C) Rs. 440
D) Rs. 440 137) How is portfolio duration reduced in
Answer: D) Rs. 440 the discussed strategies?
132) What is one strategy discussed for A) By adding higher-duration

reducing the risk of a portfolio with bonds A B) By reducing low-duration
and B? C) By selling higher-duration
D) Both A and B
A) Increasing the BPV of the portfolio Answer: B) By reducing low--duration
B) Adding another bond with a higher BPV instruments
C) Adding another bond with a BPV less
than the portfolio BPV
D) Ignoring the BPV
Answer:: C) Adding another bond with a
BPV less than the portfolio BPV
133) What is the strategy for reducing risk in

a portfolio involving bonds
nds A and B?
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138) What happens to the price volatility of A) It increases

a portfolio if two financial instruments have B) It decreases
perfect negative correlation? C) It remains the same
D) It becomes unpredictable
A) It increases Answer: B) It decreases
B) It decreases
C) It remains the same 142) How does negative correlation
D) It becomes unpredictable between stock and stock future impact the
Answer: B) It decreases portfolio's market risk?
139) How do prices of financial instruments A) It increases the market risk

with negative correlation move in such a B) It hass no impact on market risk
case? C) It decreases the market risk
D) It makes market risk unpredictable
A) In the same direction Answer:: C) It decreases the market risk
B) In opposite directions exactly
C) In opposite directions
ections but not exactly 143) In the risk terminology, how does Mr. X
D) Randomly express his market position when explaining
Answer:: C) In opposite directions but not to his Boss that he purchased d 1,000 shares
exactly of stock 'A' at Rs. 600 per share?
140) In the example provided, how does the A) In terms of quantity only
portfolio gain and loss occur when the price B) In terms of both quantity and price per
of stock A moves up by Rs. 10? share
C) In terms of monetary value only
A) The portfolio gains Rs. 10 in both long D) In terms of investment strategy only
and short positions Answer:: B) In terms of both quantity and
B) The portfolio gains Rs. 10 on the long price per share
position and loses Rs. 9 on the short
position 144) When Mr. X tells his Boss that he has
C) The portfolio loses Rs. 10 in both long taken a Rs. 600,000 position in stock 'A',
and short positions what aspect of the market position is he
D) The portfolio gains Rs. 9 on the long emphasizing?
position and loses Rs. 10 on the short
position A) Quantity
Answer:: B) The portfolio gains Rs. 10 on the B) Price per share
long position and loses Rs. 9 on the short C) Investment strategy
position D) Monetary value
Answer: D) Monetary value
141) What happens to the portfolio
volatility or market risk in the example
where a portfolio is long on a stock and
short in a stock future of the same stock?
stoc
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145) Whatt is the identified market factor in

Mr. X's position analysis using risk A) Daily volatility multiplied by 326
terminology? B) Daily volatility divided by 326
C) Daily volatility squared
A) Quantity of shares D) Daily volatility multiplied by 5
B) Stock price
C) Monetary value of the position Answer:: A) Daily volatility multiplied by 326
D) Daily volatility
Answer: B) Stock price
146) What does the market factor

sensitivity represent
resent in Mr. X's position
analysis?
A) Quantity of shares
B) Monetary value of the position
C) Sensitivity to a 1% change in the stock
price
D) Daily volatility
Answer:: C) Sensitivity to a 1% change in the
stock price
147) What is the estimated daily volatility

olatility in
Mr. X's position analysis?
A) 1%
B) 2%
C) 3%
D) 4%
Answer: C) 3%
148) What does the defeasance period

represent in Mr. X's position analysis?
A) Time to sell the stock

B) Quantity of shares
C) Daily volatility
D) Monetary value of the position
Answer: A) Time to sell the stock
149) How is the defeasance factor

calculated in Mr. X's position analysis?
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CHAPTER 15 -: Credit Risk

1. What is the primary source of credit risk for a b) Market fluctuations
bank? c) Failure of borrowers to make timely
a) Investment activities payments
b) Lending activities d) Changes in interest rates
c) Deposit activities
d) Trading activities Answer:: c) Failure of borrowers to make timely
payments
Answer: b) Lending activities
6. How is the shortfall in payment handled in
2. When does credit risk arise? banks?
a) When a borrower invests poorly a) Transferred to a separate account
b) When a borrower fails to pay interest and/or b) Offset against future profits
instalments c) Written off to the debit of the Profit and Loss
c) When a borrower demands repayment account
d) When a bank follows up for payments d) Ignored and not accounted for
Answer: b) When a borrower fails to pay Answer:: c) Written off to the debit of the Profit
interest and/or instalments and Loss account
3. How is credit risk related to loan repayments 7. When does credit risk in banks arise beyond
on demand? direct lending activities?
a) It increases when a loan is repayable on a) Only in the case
ase of direct lending
demand b) In the course of issuing guarantees or letters
b) It decreases when a loan is repayable on of credit
demand c) Solely in transactions involving treasury
c) It is not affected by the repayment terms
ter products
d) It arises only in fixed-term loans d) Exclusively in trading of securities
Answer:: a) It increases when a loan is Answer:: b) In the course of issuing guarantees

repayable on demand or letters of credit
4. What is the consequence of banks following 8. What iss the consequence of the crystallization
up for payments? of liability in the context of credit risk?
a) Banks always receive more than the amount a) Funds are immediately repaid
due b) Liability ceases to exist
b) Banks often end up receiving less than the c) Funds may not be forthcoming
amount due d) Profit and Loss account is credited
c) Banks face no consequences
d) Banks never follow up for payments Answer:: c) Funds may not be forthcoming
forthcomi
Answer:: b) Banks often end up receiving less

than the amount due
5. What is the main reason for credit risk in

banking?
a) Customer service issues
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9. In what situations does credit risk arise in 13. What is the first step in the credit risk
transactions involving treasury products? management framework?
a) When there is a shortfall in payment a) Credit Risk Measurement
b) When there is no impact on payment b) Credit Risk Monitoring and Control
c) When payments cease or are not forthcoming c) Credit Risk Identification
d) Only in cross-border exposures d) Credit Risk Mitigation
Answer:: c) When payments cease or are not Answer:: c) Credit Risk Identification
forthcoming
14. Which h part of the credit risk management
10. Why might credit risk be present in cross
cross- framework involves designing processes to
border exposure? monitor and control credit risk?
a) Due to the profitability of cross-border
border a) Credit Risk Identification
transactions b) Credit Risk Measurement
b) When there is no restriction on currency c) Credit Risk Monitoring and Control
transfer d) Credit Risk Mitigation
c) When free transfer of currency is restricted or
ceases Answer: c) Credit Riskk Monitoring and Control
d) Only when trading securities internationally
15. What is emphasized as a requirement for
Answer:: c) When free transfer of currency is managing credit risk ?
restricted or ceases a) Strong financial performance
b) Effective marketing strategies
11. What are the key questions involved in c) An organization structure capable of carrying
credit risk management? out necessary functions
a) Where, when, how much risk to accept
accept, and d) Innovation in product development
how to reduce it
b) Who, what, why, and when to manage credit Answer:: c) An organization structure capable of
risk carrying out necessary functions
c) Why, how, where, and when to accept credit
risk 16. What is the primary objective of creating an
d) Which, when, how much risk to accept, and organization for credit risk management?
can we reduce it a) Maximizing profits
b) Achieving compatibility in risk and business
Answer:: d) Which, when, how much risk to policies
accept, and can we reduce it c) Minimizing operational costs
d) Enhancing customer satisfaction
12. What is the primary objective of
determining when and how much credit risk to Answer:: b) Achieving compatibility in risk and
accept in credit risk management? business policies
a) Increasing market share
b) Improving bottom-line
c) Minimizing operational costs
d) Enhancing customer satisfaction
Answer: b) Improving bottom-line

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17. Which entity typically has the overall b) Departmental Committee

responsibility for the management of risks in the c) Board-level Sub-Committee
credit risk management structure? d) Operational Committee
a) Risk Management Committee
b) Credit Risk Management Department Answer: c) Board-level Sub-Committee
Committee
c) Credit Policy Committee (CPC)
d) Board of Directors 22. What are the responsibilities of the Risk
Management Committee regarding credit risk
Answer: d) Board of Directors management?
a) Implementing credit policies
18. What specific responsibilities does the Board b) Setting guidelines for credit risk management
of Directors have in credit riskk management? and reporting
a) Formulating credit risk management policies c) Enforcing compliance of risk parameters
only d) Analyzing market trends
b) Reviewing mechanisms and reporting
systems Answer:: b) Setting guidelines for credit risk
c) Articulating credit risk management policies, management and reporting
procedures, and aggregate risk limits
d) Implementing credit risk management 23. What is another name for the
th Credit Policy
procedures Committee (CPC)?
a) Credit Risk Management Department (CRMD)
Answer:: c) Articulating credit risk management b) Risk Management Committee
policies, procedures, and aggregate risk limits c) Credit Control Committee
d) Operational Committee
19. Which committee is responsible for
formulating and reviewing credit policies in the Answer:: c) Credit Control Committee
credit risk management structure?
a) Risk Management Committee 24. What is the primary focus of the Credit
b) Credit Risk Management Department Policy Committeeee (CPC) in the organizational
c) Credit Policy Committee (CPC) structure?
d) Board of Directors a) Enforcing compliance of risk parameters
b) Setting guidelines for credit risk management
Answer:: c) Credit Policy Committee (CPC) c) Implementing credit policies
d) Analyzing market trends
20. What is the role of the Credit Risk
Management Department in the credit risk Answer:: b) Setting guidelines for credit risk
management structure? management
a) Setting aggregate risk limits
b) Implementing credit policies
c) Articulating risk management policies
d) Reviewing mechanisms and reporting
systems
Answer:: b) Implementing credit policies
21. What is the status of the Risk Management

Committee in the organizational structure?
a) Subsidiary Committee
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25. How does the Credit Risk Management c) The risk of potential failure of a borrower to
Department (CRMD) relate to the Credit make promised payments
Administration Department? d) The risk of operational deficiencies
a) They are the same department
b) CRMD enforces compliance, while the Credit Answer:: c) The risk of potential failure of a
Administration Department sets guidelines borrower to make promised payments
c) CRMD and the Credit Administration
ministration
Department have no relation 30. What is the term used to describe the
d) CRMD is independent of the Credit fraction of obligations that will normally be paid
Administration Department in the event of default?
a) Default spread
Answer:: d) CRMD is independent of the Credit b) Credit spread
Administration Department c) Recovery
d) Risk assessment
26. What are the primary responsibilities of the
Credit Risk Management Department ment (CRMD)? Answer: c) Recovery
a) Setting credit policies and procedures
b) Monitoring quality of loan portfolio and 31. What is the term used to describe the risk
identifying problems due to a worsening in credit quality, resulting in
c) Enforcing compliance of risk parameters the possible widening of the credit spread?
d) Implementing credit policies a) Market risk
b) Concentration risk
Answer:: b) Monitoring quality of loan portfolio c) Credit spread risk
and identifying problems d) Systematic risk
27. What is one of the components of credit Answer: c) Credit spread risk
risk?
a) Market risk 32. How is credit spread risk usually reflected?
b) Operational risk a) Through rating upgrades
c) Default risk b) Through rating downgrades
d) Interest rate risk c) Through changess in market interest rates
d) Through fluctuations in currency exchange
Answer: c) Default risk rates
28. What drives default risk? Answer:: b) Through rating downgrades

a) Market fluctuations
b) Potential changes in the credit quality
lity of a 33. Why is marking loans to market less relevant
borrower for credit risk?
c) Interest rate changes a) Loans are usually marked-to--market
d) Operational deficiencies b) The credit event is the only factor
fa
determining immediate loss
Answer:: b) Potential changes in the credit c) Credit spread risk is not affected by marking
quality of a borrower to market
d) Loans are not subject to market fluctuations
29. How is default risk defined?
a) The risk of market fluctuations Answer:: b) The credit event is the only factor
b) The risk of interest rate changes determining immediate loss
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34. What term is used to describe risks c) Risk associated with a borrower's non-
non
associated with the credit portfolio as a whole? performance
a) Concentration risk d) Risk associated with industry-specific
industry
b) Systematic risk challenges
c) Intrinsic risk
d) Portfolio risk Answer:: a) Risk associated with trading
partners' non-performance
Answer: d) Portfolio risk
39. How is Counterparty Risk generally viewed
35. What is the systematic or intrinsic risk in the context of trading?
associated with a fully diversified portfolio? a) As a standard credit risk
a) Maximum risk level b) As a transient financial risk
b) Minimum risk level c) As a systemic risk
c) Risk corresponding to the economy in which it d) As an intrinsic risk
is operating
d) Concentration risk Answer:: b) As a transient financial risk
Answer:: c) Risk corresponding to the economy 40. What is Country Risk in the context of credit
in which it is operating risk?
a) Risk associated with a borrower's non-
non
36. What risk does a portfolio face if it is not performance
diversified and has a higher concentration in b) Risk associated with trading partners' non-
non
terms of a borrower, geography, or industry? performance
a) Systematic risk c) Risk associated with restrictions imposed
impose by a
b) Concentration risk sovereign
c) Intrinsic risk d) Risk associated with industry-specific
industry
d) Counterparty risk challenges
Answer: b) Concentration risk Answer:: c) Risk associated with restrictions

imposed by a sovereign
37. How is concentration risk?
a) Risk associated with a borrower's non-
non 41. What are the two levels of Credit Risk?
performance a) Market Risk and Operational Risk
b) Risk associated with trading partners' non
non- b) Transaction Level Risk and Portf
Portfolio Level Risk
performance c) Interest Rate Risk and Liquidity Risk
c) Risk associated with a lack of portfolio d) Counterparty Risk and Country Risk
diversification
d) Risk associated with country-specific
specific Answer:: b) Transaction Level Risk and Portfolio
restrictions Level Risk
Answer:: c) Risk associated with a lack of 42. What components make up Transaction
portfolio diversification Level Risk?
a) Default Risk and Systematic Risk
38. What does Counterparty Risk refer to? b) Default Risk and Concentration Risk
a) Risk associated with trading partners' non
non- c) Downgraded Risk and Concentration Risk
performance d) Downgraded Risk and Systematic Risk
b) Risk associated with country-specific
specific
restrictions Answer:: a) Default Risk and Downgraded Risk
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d) By assessing liquidity risk

43. Which risk is associated with the potential
failure of a borrower to make promised Answer:: c) By estimating both expected and
payments, as mentioned in the context of unexpected loan losses
Transaction Level Risk?
a) Concentration Risk 48. What is the chosen time horizon for tracking
b) Default Risk portfolio behavior in credit risk measurement?
c) Downgraded Risk a) 1 year
d) Systematic Risk b) 3 years
c) 5 years or more
Answer: b) Default Risk d) 10 years
44. What components make up Portfolio Level Answer: c) 5 years or more

Risk?
a) Concentration Risk and Default Risk 49. How is expected loan loss defined in the
b) Concentration
tion Risk and Systematic Risk context of credit risk measurement?
c) Downgraded Risk and Systematic Risk a) The amount of loan losses that a bank would
d) Downgraded Risk and Concentration Risk experience over a chosen time horizon
b) The amount
mount by which actual losses exceed
Answer:: b) Concentration Risk and Systematic the expected loss
Risk c) The amount of market risk associated with
loans
45. What type of risk is associated with the lack d) The amount of credit rating/scoring needed
of diversification and a higher weight in terms of for a loan
a borrower, geography, or industry at the
portfolio level? Answer:: a) The amount of loan losses that a
a) Systematic Risk bank would experience over a chosen time
b) Default Risk horizon
c) Concentration Risk
d) Downgraded Risk 50. What is unexpected loan loss in the context
of credit risk measurement?
Answer: c) Concentration Risk a) The amount by which actual losses exceed
the expected loss
46. What is one method of measuring credit b) The amount of liquidity risk associated with
risk? loans
a) Estimating market risk c) The amount of credit rating/scoring needed
b) Credit rating/scoring for a loan
c) Quantifying operational risk d) Thee amount of loan losses that a bank would
d) Assessing liquidity risk experience over a chosen time horizon
Answer: b) Credit rating/scoring Answer:: a) The amount by which actual losses

exceed the expected loss
47. How is credit risk quantified in terms of loan
losses?
a) By estimating unexpected loan losses only
b) By estimating market fluctuations
c) By estimating both expected and unexpected
loan losses
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51. Why is credit rating necessary? d) Econometric models are accurate

a) To determine the profitability of an account
b) To assess the
he liquidity of an account Answer:: b) No, there is no accurate model
c) To predict the future capability of a borrower
to meet financial obligations 56. Why do lenders in financial markets rely on
d) To analyze the market trends models to predict the future ca
capability of a
borrower?
Answer:: c) To predict the future capability of a a) Because models guarantee accurate
borrower to meet financial obligations predictions
b) Because they have no other option
52. What is the primary objective
jective of credit c) Because the behavior of borrowers with
rating? similar ratings tends to be within bounds
a) To assess current financial performance d) Because models eliminate the paradoxical
b) To determine market share situations
c) To predict whether the borrower will
continue to meet its obligations in the future Answer:: c) Because the behavior of borrowers
d) To analyze industry trends with similar ratings tends to be within bounds
Answer:: c) To predict whether the borro

borrower 57. What is the paradoxical situation mentioned
will continue to meet its obligations in the in the passage regarding borrower ratings?
future a) Borrowers with higher ratings tend to default
more frequently
53. What does a credit rating depict? b) Borrowers with lower ratings tend to default
a) Market share of the borrower more frequently
b) Default probability of the borrower c) Borrowers with similar ratings may have
c) Liquidity of the borrower different default outcomes
d) Profitability of the borrower d) All borrowers default regardless of their
ratings
Answer: b) Default probability
lity of the borrower
Answer:: c) Borrowers with similar ratings may
54. What parameters are typically involved in have different default outcomes
the credit rating process?
a) Mathematical, econometric, and empirical 58. How is the paradoxical situation explained?
parameters a) By the accuracy of mathematical models
b) Financial, management, industry, and b) By the frequency of rating changes
business parameters c) By tracking a group of borrowers with similar
c) Market, operational, and liquidity paramete
parameters ratings over time
d) Profitability, liquidity, and market parameters d) By eliminating certain rating categories
Answer:: b) Financial, management, industry, Answer: c) By tracking

racking a group of borrowers
and business parameters with similar ratings over time
55. Is there a model that can accurately predict

the future capability of a borrower to meet its
financial obligations?
a) Yes, mathematical
hematical models are accurate
b) No, there is no accurate model
c) Empirical models are accurate
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59. In the hypothetical scenario mentioned in b) 2 borrowers

the passage, what is the outcome for 100 'C' c) 5 borrowers
rated borrowers tracked over one year? d) 20 borrowers
a) All borrowers default
b) Some borrowers default Answer: b) 2 borrowers
c) No borrowers default
d) The outcome cannot be determined 64. How w does the estimation of possible
defaults among 'B' rated accounts differ from 'A'
Answer: b) Some borrowers default rated accounts in the scenario?
a) There is no difference
60. In the same scenario, what is the outcome b) 'B' rated accounts have a higher default rate
for 100 'A' rated borrowers tracked over the c) 'B' rated accounts have a lower default rate
same period? d) 'B' rated accounts
unts are not considered for
a) All borrowers default estimation
b) Some borrowers default
c) No borrowers default Answer:: b) 'B' rated accounts have a higher
d) The outcome cannot be determined default rate
Answer: c) No borrowers default 65. How does the estimation of possible

defaults among borrowers help banks in loan
61. How do lenders in the financial market pricing?
determine the class to which a borrower a) By reducing the cost of default
belongs? b) By eliminating certain borrower
rower classes
a) By assessing market trends c) By predicting market trends
b) Based on the borrower's profitability d) By recovering the cost of default
c) By rating accounts
d) By analyzing liquidity ratios Answer:: d) By recovering the cost of default
Answer: c) By rating accounts 66. Why is the cost of default built into the loan
pricing for 'B' rated accounts?
62. What is the purpose of lenders estimating a) To encourage borrowing from 'B' rated
the possible number of defaults among accounts
borrowers belonging to the same class based on b) To discourage borrowing from 'B' rated
past default records? accounts
a) To eliminate certain classes
sses from lending c) To recover the cost of default due to a higher
b) To predict market trends rate of default
c) To assess the cost of default and incorporate d) To eliminate certain borrower classes from
it into loan pricing lending
d) To determine the profitability of accounts
Answer:: c) To recover the cost of default due to
Answer:: c) To assess the cost of default and a higher rate of default
incorporate it into loan pricing
63. In the given

ven scenario, if a bank has 200
borrowers rated 'A' with a past record of 1%
default, how many borrowers might the bank
estimate to default at the end of the year?
a) 1 borrower
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67. How does the pricing of 'B' rated accounts 71. What is the relationship between
compare to 'A' rated accounts? uncertainty of revenue generation and the
a) 'B' rated accounts are priced lower than 'A' likelihood of failing in keeping financial
rated accounts commitments?
b) 'B' rated accounts are priced at the same a) There is no relationship
level as 'A' rated accounts b) As uncertainty increases,, the likelihood of
c) 'B' rated accounts are not considered
ed for failure increases
pricing c) As uncertainty increases, the likelihood of
d) 'B' rated accounts are priced higher than 'A' failure decreases
rated accounts d) Uncertainty has no impact on financial
commitments
Answer:: d) 'B' rated accounts are priced higher
than 'A' rated accounts Answer:: b) As uncertainty increases, the
likelihood of failure increases
68. What is necessary to actively manage a
credit portfolio, according to the passage? 72. In the example provided,
ided, why is the risk
a) Predicting market trends associated with cash generation from an
b) Developing and maintaining data on default investment in Government Securities
c) Eliminating certain borrower classes considered non-existent
existent or zero?
d) Ignoring credit ratings a) Because Government Securities have high
returns
Answer:: b) Developing and maintaining data on b) Because Government Securities have no risk
default c) Because the revenue generation
ation from
Government Securities is stable
69. What is the purpose of a Credit Rating d) Because Government Securities are highly
Model? profitable
a) To encourage borrowingng from all rated
accounts Answer:: c) Because the revenue generation
b) To discourage borrowing from all rated from Government Securities is stable
accounts
c) To differentiate borrowers based on the 73. How is a borrower's revenue generation
stability of revenue generation stability related to their credit rating?
d) To eliminate the need for data on defaults a) The more stable the revenue generation, the
higher the credit rating
Answer:: c) To differentiate borrowers based on b) The less stable the revenue generation, the
the stability of revenue generation higher the credit rating
c) Revenue generation stability has no impact
70. What does 'Rating Migration' refer to? on credit rating
a) The movement of borrowers between rating d) Highly profitable companies always receive
re
categories higher credit ratings
b) The elimination of certain borrower classes
c) The predictability of market trends Answer:: a) The more stable the revenue
d) The development of credit rating models generation, the higher the credit rating
Answer:: a) The movement of borrowers

between rating categories
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74. What clarification does the passage provide Answer:: c) It becomes useful when migration of
regarding credit rating and profitability? a large number of accounts of similar rating is
a) Credit rating is directly proportional to observed
profitability
b) Highly profitable companies always receive 78. In the example provided, what does it mean
higher credit ratings when the rating of an account migrates from B+
c) Profitability has no impact on credit rating to B over a one-year period?
d) A lower level of profitability can result in a a) The account
ount has become more profitable
higher credit rating b) The account has become less profitable
c) The account's creditworthiness has increased
Answer:: c) Profitability has no impact on credit d) The account's creditworthiness has
rating decreased
75.. Why might a highly profitable company Answer:: d) The account's creditworthiness has
receive a lower credit rating than a less decreased
profitable one?
a) Because the highly profitable company has 79. Why does the passage mention ntion that the
more uncertainties in revenue generation migration of a single account does not convey
b) Because the less profitable company has a much?
higher level of risk a) Single accounts are not important for credit
c) Because
ause credit rating is inversely proportional assessment
to profitability b) It is difficult to assess the creditworthiness of
d) Because the less profitable company has a a single account
more stable revenue generation c) The rating of a single account may change for
various reasons
Answer:: a) Because the highly profitable d) Single accounts always have stable credit
company has more uncertainties in revenue ratings
generation
Answer:: c) The rating of a single account may
76. What is Rating Migration? change for various reasons
a) The process of rating a borrower
b) Change in the rating of a borrower over a 80. When does Rating Migration become
period of time useful?
c) The market assessment of a borrower's rating a) When assessing the creditworthiness of
d) The model used for rating borrowers individual accounts
b) When migration
ion of a large number of
Answer:: b) Change in the rating of a borrower accounts of different ratings is observed
over a period of time c) When migration of a large number of
accounts of similar rating is observed
77. How is Rating Migration useful? d) When assessing the market trends
a) It conveys a lot about a single account
b) It is useful only for large accounts Answer:: c) When migration of a large number
c) It becomes useful when migration of a large of accounts of similar rating is observed
number of accounts of similar rating is observed
d) It is not useful in assessing borrower
orrower ratings
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81. According to the migration table, how many d) Regulatory validation

accounts are rated 'A++'?
a) 1 Answer:: c) Mapping with market standards
b) 79
c) 10 86. What does Altman's Z-Score
Score forecast?
d) 100 a) Market trends
b) Probability of bankruptcy within a 12-month
12
Answer: a) 1 period
c) Probability of profit
82. What does the migration table suggest d) Volatility in asset values
about the default probability of 'A' rated
borrowers based on one-year data? Answer:: b) Probability of bankruptcy within a
a) 0.2% 12-month period
b) 2%
c) 20% 87. What does Altman's Z-Score
Score utilize to
d) 79% produce an objective measure of the borrower's
financial health?
Answer: b) 2% a) Market trends
b) Probability of bankruptcy
83. How is the estimation of default probability c) Quality of assets
improved when data is collated over a number d) Five financial ratios and equity values
of years?
a) It remains the same Answer:: d) Five financial ratios and equity
b) It decreases values
c) It becomes less reliable
d) It becomes a more reasonable estimation 88. What is the focus of J.P. Morgan's
CreditMetrics portfolio model?
Answer:: d) It becomes a more reasonable a) Probability of bankruptcy
estimation b) Estimating the volatility in the
he value of assets
c) Actuarial calculation of expected default rates
84. What does the passage suggest about d) Unexpected losses from default
comparing the migration pattern of 'A' rated
borrowers with standard migration patterns Answer:: b) Estimating the volatility in the value
published by rating agencies? of assets
a) It is unnecessary
b) It is not reliable 89. How does the CreditMetrics model track the
c) It should not be done probability of borrower migration?
d) It is important for validating the model a) By calculating market trends
b) By estimating unexpected losses
Answer:: d) It is important for validating the c) By monitoring changes in asset quality
model d) By tracking the probability of borrowers
migrating from one rating category to another
85. What is the term used for comparing the
model's migration pattern with standard Answer:: d) By tracking the probability of
migration patterns observed in the market? borrowers migrating from one rating category
a) Model assessment to another
b) Market comparison
c) Mapping with market standards
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90. What is the basis of Credit Suisse's 94. What is emphasized as crucial in the last
CreditRisk+ model? sentence of the passage?
a) Market trends a) Risk elimination
b) Actuarial calculation of expected default rates b) Active portfolio managemen
management
c) Estimating the volatility in the value of assets c) Risk-taking activities
d) Statistical method for measuring and d) Monitoring without control
accounting for credit risk
Answer:: b) Active portfolio management
Answer:: b) Actuarial calculation of expected
default rates 95. Why does risk taking through lending
activities require a control and monitoring
91. Why is an effective control and monitoring mechanism?
mechanism crucial in lending activities? a) Because lending activities are not widespread
a) To limit risk-taking b) Because lending activities have a low share of
b) Due to the widespread nature of lending credit risk
activities c) Because lending activities are not dynamic
c) To eliminate the need for portfolio d) Because of the widespread nature and high
management share of credit risk in total risk-taking
taking
d) Because lending activities are not significant
Answer:: d) Because of the widespread nature
Answer:: b) Due to the widespread nature of and high share of credit risk
isk in total risk-taking
risk
lending activities
96. What is emphasized as a basic prerequisite
92. What is the second reason mentioned in the for effective credit risk control and monitoring?
passage for the need for an effective contro
control a) Transaction level analysis
and monitoring mechanism in lending activities? b) Credit risk policies
a) To maximize risk-taking c) Credit appraisal process
b) Due to the low share of credit risk in total d) Appropriate credit information system
risk-taking
c) Because lending activities are not significant Answer: d) Appropriate credit information
d) Because of the very high share of credit risk system
in total risk-taking
97. What is mentioned as the backbone for an
Answer:: d) Because of the very high share of effective Credit Risk Management (CRM)
credit risk in total risk-taking system?
a) Comprehensive and detailed Management
93. Why is active portfolio management Information System (MIS)
necessary in the context of lending activities? b) Credit Audit and Loan Review
a) To minimize risk c) Transaction-level analysis
b) To eliminate the need for control and d) Risk analysis process
monitoring
c) To keep up with
ith the dynamics of the economy Answer:: a) Comprehensive and detailed
d) Because lending activities are not dynamic Management Information System (MIS)
Answer:: c) To keep up with the dynamics of the

economy
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98. What are the instruments of Credit Risk 102. What should the Board outline
out standards
Management at the transaction level? and guidelines for at the transaction level?
a) Only credit appraisal process a) Employee performance
b) Only risk analysis process b) Marketing strategies
c) Credit audit and loan review c) Delegation of powers, credit appraisals, rating
d) Credit appraisal process, risk analysis process, standards, benchmarks, pricing strategy, and
credit audit and loan review, and monitoring loan review mechanism
process d) Office decor
Answer:: d) Credit appraisal process, risk Answer: c) Delegation

elegation of powers, credit
analysis process, credit audit and loan review, appraisals, rating standards, benchmarks,
and monitoring process pricing strategy, and loan review mechanism
99. What is the need mentioned in the passage 103. What should each bank have regarding the
regarding the efficiency of credit risk delegation of powers?
management processes at the transaction level? a) A vague policy
a) To eliminate the credit appraisal process b) A complex hierarchy
b) To objectively identify the credit quality of c) A carefully formulated scheme of delegation
borrowers of powers
c) To reduce the use of early warning signals d) No delegation of powers
d) To ignore future reference
Answer:: c) A carefully formulated scheme of
Answer:: b) To objectively identify the credit delegation of powers
quality of borrowers
104. What does the passage recommend
100. What is the purpose of providing an early regarding the credit approving authority?
warning signal for deterioration in the credit risk a) Elimination of the credit approving authority
of borrowers? b) A single-tier
tier credit approving system
a) To eliminate the need for credit risk policies c) The use of a decentralized Approval Grid
b) To enhance the default analysis d) A multi-tier
tier credit approving system with an
c) To disregard transaction-level
level analysis Approval Grid or a Committee
d) To avoid monitoring processes
Answer: d) A multi-tier
tier credit approving system
Answer:: b) To enhance the default analysis with an Approval Grid or a Committee
101. Where should the credit risk-taking

taking policy 105. What does the Board need to derive rating
and guidelines at the transaction level be standards and benchmarks from?
articulated? a) Market trends
a) Internal memos b) Employee opinions
b) Employee handbooks c) The Risk Rating System
c) The bank's Loan Policy Document approved d) External auditors
by the Board
d) Government regulations Answer:: c) The Risk Rating System
Answer:: c) The bank's Loan Policy Document

approved by the Board
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106. How many officers should the 'Grid' or

'Committee' comprise? Answer:: c) Financial and profitability ratios,
a) 1 credit exposure, asset concentration,
concentratio large
b) 2 exposures, maturity profile of the loan book
c) At least 3 or 4
d) 5 111. How frequently should the credit risk
assessment exercise be repeated?
Answer: c) At least 3 or 4 a) Annually
b) Quarterly
107. What role should the officer representing c) Bi-annually
annually (or even at shorter intervals for
the Credit Risk Management Department low-quality customers)
(CRMD) play in the 'Grid' or 'Committee'? d) Once every five years
a) Set profit targets
b) Represent the board's opinion Answer: c) Bi-annually
annually (or even at shorter
c) Have volume and profit targets intervals for low-quality
quality customers)
d) Have no volume and profit targets
112. What is the recommended frequency for
Answer:: d) Have no volume and profit targets updating credit ratings?
a) Once every five years
108. What does credit appraisal include? b) Annually
a) Employee evaluations c) Quarterly
b) Market trends analysis d) Bi-annually
c) Procedures for analyzing credit requirements
and risk factors Answer: c) Quarterly
d) Office decoration standards
113. Why should the updating of credit ratings
Answer:: c) Procedures for analyzing credit be undertaken at periodic intervals?
requirements and risk factors a) To eliminate the need for credit ratings
b) To gauge the asset quality at periodic
109. How does the passage describe the intervals
purpose of prudential limits in limiting credit c) To set profit targets
risk? d) To assess market trends
a) To maximize credit risk
b) To set strict profit targets Answer:: b) To gauge the asset quality at
c) To bring uniformity of approach in credit risk
risk- periodic intervals
taking activity
d) To eliminate credit risk 114. What note does the passage provide
regarding the study on migration of borrowers
Answer:: c) To bring uniformity of approach in in the ratings?
credit risk-taking activity a) It is unnecessary
b) It should be done only for high
high-quality
110. What are examples of prudential limits? customers
a) Employee standards c) It adds accuracy to expected loan loss
b) Market concentration calculations
c) Financial and profitability ratios, credit d) It is applicable only for short--term loans
exposure, asset concentration, large exposures,
maturity profile of the loan book Answer:: c) It adds accuracy to expected loan
d) Employee profit targets loss calculations
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115. What type of migration is mentioned in the Answer: c) Risk rating

passage to add accuracy to expected loan loss
calculations? 120. What does credit control and monitoring at
a) Employee migration the portfolio level deal with?
b) Market migration a) Short-term risks
c) Upward and downward migration of b) Expected profits
borrowers in the ratings c) Risk of a given portfolio, expected losses,
d) Short-term migration requirement of risk capital, and impact of
changing the portfolio mix on risk, expected
Answer:: c) Upward and downward migration of losses, and capital
borrowers in the ratings d) Market-driven pricing
116. What is the recommended pricing strategy Answer:: c) Risk of a given portfolio, expected
for credit products to generate adequate risk
risk- losses,
s, requirement of risk capital, and impact
adjusted returns on capital? of changing the portfolio mix on risk, expected
a) Fixed pricing losses, and capital
b) Market-driven pricing
c) Risk-based pricing 121. What is one of the activities mentioned for
d) Profit-driven pricing credit control and monitoring at the portfolio
level?
Answer: c) Risk-based pricing a) Market analysis
b) Evaluation of individual
idual loans
117. In a risk-return
return setting, how should c) Identification of portfolio credit weaknesses
borrowers with weak financial positions be d) Profit-driven pricing
priced?
a) Low pricing Answer:: c) Identification of portfolio credit
b) Fixed pricing weaknesses
c) Moderate pricing
d) High pricing 122. What does the evaluation of exposure
distribution over rating categories help in
Answer: d) High pricing stipulating?
a) Profit targets
118. What should have a bearing on the pricing b) Quantitative ceilings on aggregate exposure
of credit risk? c) Borrower loyalty
a) Market trends d) Market trends
b) Profit targets
c) Probability of default Answer:: b) Quantitative ceilings on aggregate
d) Borrower loyalty exposure
Answer: c) Probability of default
119. What should the pricing of loans normally

be linked to?
a) Borrower loyalty
b) Market trends
c) Risk rating
d) Profit targets
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123. How does the passage recommend c) Not related

containing concentration risk in the portfolio? d) Randomly related
a) By eliminatingg exposure to specific industries
b) By setting exposure limits in specified rating Answer:: b) Directly proportional
categories
c) By reducing the overall portfolio size 128. In Altman's Z-score
score model, what is the
d) By eliminating risk entirely classification for a firm with Z > 81 and Z < 3?
a) Low risk
Answer:: b) By setting exposure limits in b) Medium risk
specified rating categories c) High risk
d) No risk
124. What is onee of the measures mentioned to
maintain portfolio quality? Answer: b) Medium risk
a) Elimination of industry-wise
wise monitoring
b) Evaluation of rating-wise
wise distribution 129. According to Altman's Z-score
score model, what
c) Ignoring exposure performance does a Z-score
score greater than 81 suggest about
d) Increasing exposure to poorly performing the borrower's
wer's likelihood of bankruptcy?
industries a) High chance
b) Low chance
Answer: b) Evaluation of rating-wise c) No chance
distribution d) Random chance
125. What action may banks take if the portfolio Answer: b) Low chance
exposure to a single industry is badly
performing? 130. What financial ratios are used in Altman's
a) Increase exposure without changes Z-score model?
b) Decrease exposure without changes a) X1, X2, X3, X4, X5
c) Maintain the same exposure levels b) Profit margin, liquidity ratio, debt
debt-to-equity
d) Increase the quality standards for that ratio
specific industry c) Revenue, expenses, net income
d) Short-term debt, long-term
term debt, equity
Answer:: d) Increase the quality standards for
that specific industry Answer: a) X1, X2, X3, X4, X5
126. According to Altman's Z-score

score model, what
does a firm with a Z-score
score of less than 81
indicate?
a) Low risk
b) Medium risk
c) High risk
d) No risk
Answer: c) High risk
127. How is the Z-score

score related to a borrower's
default risk in Altman's model?
a) Inversely proportional
b) Directly proportional
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CHAPTER 16 -: Operational Risk and Integrated Risk Management

1. What type of risk is operational risk? a) Predictable events
a) Specific risk b) Planned functioning of systems
b) Universal risk c) Human failures of omission and commission
c) Industry-specific risk d) Stable technology
d) General risk
Answer:: c) Human failures of omission and
Answer: d) General risk commission
2. How does the complexity of an organization 6. How are the results of deviation from normal
relate to its exposure to operational risk? functioning reflected in the organization's
a) Inversely proportional revenues?
b) Not related a) Additional revenue
c) Directly proportional b) Loss of opportunities
d) Randomly related c) Stable revenue
d) No impact on revenue
Answer: c) Directly proportional
Answer:: b) Loss of opportunities
3. What is mentioned as a cause of operational
risk? 7. What are some potential sources of
a) Market trends operational risk?
b) Deviations from normal and planned a) Predictable events
functioning of systems, procedures, technology, b) Planned functioning of systems
and human failures c) Inherent faults in systems, procedures, and
c) Changes in interest rates technology
d) External competition d) Stable technology
Answer:: b) Deviations from normal and Answer:: c) Inherent faults in systems,

planned functioning of systems, procedures, procedures, and technology
technology, and human failures
8. How does the Basel Committee define
4. Is operational risk specific to certain operational risk?
industries? a) The risk of market fluctuations
a) Yes, only certain industries face operational b) The risk of loss resulting from inadequate or
risk failed internal processes, people, and systems,
b) No, operational risk is universal and faced by or from external events
all organizations c) The risk of profit maximization
c) Operational risk is only faced by financial d) The risk of external competition
institutions
d) Operational risk is not clearly defined in the Answer: b) The risk off loss resulting from
passage inadequate or failed internal processes, people,
and systems, or from external events
Answer:: b) No, operational risk is universal and
faced by all organizations
5. What is mentioned
ioned as a factor contributing to
operational risk?
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9. What is recognized in Basel II regarding b) Risks occur with the same frequency
operational risk? c) Risks have varying degrees of potential for
a) Operational risk is downplayed causing damages and varyinging frequencies
b) No recognition of operational risk d) All risks occur with equal frequency
c) Specific
fic capital allocation accounting for
operational risk Answer:: c) Risks have varying degrees of
d) Operational risk is not considered a potential for causing damages and varying
significant factor frequencies
Answer:: c) Specific capital allocation accounting 14. What did the Second Consultative Paper of
for operational risk Basel II suggest for the classification of
operational risks?
10. How might operational risk impact an a) Classification based on industries
organization's revenues? b) Classification based on geographical regions
a) By increasing revenues c) Classification based on causes and effects
b) By way of additional expenses or loss of d) No specific classification suggested
feasible opportunities
c) By stabilizing revenues Answer:: c) Classification based on causes and
d) By reducing expenses effects
Answer:: b) By way of additional expenses or 15. What are the two aspects mentioned for the
loss of feasible opportunities classification of operational risks?
a) Risks and consequences
11. What is emphasized before classifying
fying b) Causes and effects
operational risk into various categories? c) High and low potential risks
a) The impact of operational risk d) Internal and external risks
b) Understanding the nature of operational risk
c) The frequency of operational risk Answer: b) Causes and effects
d) Potential damages caused by operational risk
16. What are some examples of people
people-oriented
Answer:: b) Understanding the nature of causes of operational risk?
operational risk a) Natural disasters and political context
b) Negligence, incompetence, insufficient
12. Where does operational risk arise from? training
a) Specific departments c) Lack of automation and poor design
b) Only in high-risk areas d) Organizational complexity and product
c) Literally from all the activities undertaken complexity
d) External sources only
Answer:: b) Negligence, incompetence,
Answer:: c) Literally from all the activities insufficient training
undertaken
13. How doess the passage describe the impact

of various forms of operational risk on the
organization?
a) All risks have equal potential for causing
damages
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17. What is categorized as process-oriented

oriented b) Business volume fluctuation
(Transaction based) causes of operational risk? c) Negligence
a) Poor technology and telecom d) Poor technology and telecom
b) Inadequate segregation of duties
c) Business volume fluctuation Answer: c) Negligence
d) Lack of management supervision
22. Which category of operational risk involves
Answer: c) Business
ness volume fluctuation inadequate segregation of duties, lack of
management supervision, and inadequate
18. Which aspect of operational risk involves procedures?
inadequate segregation of duties, lack of a) Employment practices and workplace safety
management supervision, and inadequate b) Process-oriented
oriented (Operational control based)
procedures? causes
a) People-oriented causes c) Loss or damage to assets
b) Process-oriented
oriented (Transaction based) causes d) Clients, products, and business practices
c) Process-oriented (Operational control based)
causes Answer: b) Process-oriented
oriented (Operational
d) Technology-oriented causes control based) causes
Answer: c) Process-oriented
oriented (Operational 23. What is an example
xample of a technology-
technology
control based) causes oriented cause of operational risk?
a) External Fraud
19. What are examples of technology--oriented b) Poor technology and telecom, obsolete
causes of operational risk? applications
a) Natural disasters and political context c) Execution, delivery, and process management
b) Poor technology and telecom, obsolete d) Loss of recourse
applications
c) Lack of automation and poor design Answer:: b) Poor technology and telecom,
d) Organizational complexity and product obsolete applications
complexity
24. Which cause of operational risk is related to
Answer:: b) Poor technology and telecom, inadequate segregation of duties, lack of
obsolete applications management supervision, and inadequate
procedures?
20. What is considered an external cause of a) Legal liability
operational risk? b) Business disruption and system failures
a) Lack of automation c) Process-oriented
oriented (Operational control based)
bas
b) Deteriorated social or political context causes
c) Inadequate segregation of duties d) Clients, products, and business practices
d) Business volume fluctuation
Answer: c) Process-oriented
oriented (Operational
Answer:: b) Deteriorated social or political control based) causes
context
21. What is a people-oriented

oriented cause of
operational risk?
a) Legal liability
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25. What is an example of an external cause of 30. Which effect-based category

tegory of operational
operational risk? risk involves loss or damage to assets?
a) Damage to physical assets a) Clients, products, and business practices
b) Employment practices and workplace safety
sa b) Loss of recourse
c) Operational failures of a third party c) Damage to physical assets
d) Business volume fluctuation d) Business disruption and system failures
Answer:: c) Operational failures of a third party Answer:: c) Damage to physical assets
26.. What is the driving force behind the impetus 31. What is a regulatory
ulatory aspect of operational
of integrated risk management? risk?
a) Basel I a) Employment practices and workplace safety
b) Basel II b) Legal liability
c) Basel III c) Execution, delivery, and process management
d) Basel IV d) Regulatory, compliance, and taxation
penalties
Answer: c) Basel III
Answer:: d) Regulatory, compliance, and
27. What is an effect-based
based category of taxation penalties
operational risk?
a) Internal Fraud 32. What does the term "Internal Fraud" in
b) Business disruption and system failures operational risk classification refer to?
c) Legal liability a) Losses due to acts inconsistent with
d) Poor technology and telecom employment, health, or safety laws
b) Losses from unintentional or negligent failure
Answer: c) Legal liability to meet professional obligations
c) Losses from
rom acts intended to defraud,
28. Which category of operationall risk involves misappropriate property, or circumvent
loss or damage to assets? regulations by internal parties
a) Employment practices and workplace safety d) Losses arising from diversity/discrimination
b) Damage to physical assets events involving internal parties
c) External Fraud
d) Execution, delivery, and process management Answer:: c) Losses from acts intended to
defraud, misappropriate property,
propert or
Answer:: b) Damage to physical assets circumvent regulations by internal parties
29. What is an example of an effect-based

based
category of operational risk?
a) Regulatory, compliance, and taxation
penalties
b) Loss of recourse
c) Clients, products, and business practices
d) External Fraud
Answer:: a) Regulatory, compliance, and

taxation penalties
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33. How is "External Fraud" defined in the obligations to specific clients or from the nature
context of operational risk classification? or design of a product
a) Losses from acts inconsistent with
employment, health, or safety laws 36. Which type of operational risk
ris involves
b) Losses from unintentional or negligent
igent failure losses from diversity/discrimination events,
to meet professional obligations excluding those involving internal parties?
c) Losses from acts intended to defraud, a) Internal Fraud
misappropriate property, or circumvent the law b) External Fraud
by a third party c) Employment Practices and Workplace Safety
d) Losses arising from diversity/discrimination d) Clients, Products, and Business Practices
events involving external parties
Answer: d) Clients, Products,, and Business
Answer: c) Losses from
om acts intended to Practices
defraud, misappropriate property, or
circumvent the law by a third party 37. What does "Damage to Physical Assets"
involve in operational risk classification?
34. What does "Employment Practices and a) Losses from failed transaction processing
Workplace Safety" cover in operational risk b) Losses from natural disasters or damage to
classification? physical assets
a) Losses from acts inconsistent with c) Losses from disruption of business or system
employment, health, or safety laws failures
b) Losses from unintentional or negligent failure d) Losses from diversity/discrimination events
to meet professional obligations involving physical assets
c) Losses due to acts intended to defraud,
misappropriate property, or circumvent Answer:: b) Losses from natural disasters or
regulations damage to physical assets
d) Losses arising from diversity/discrimination
events involving internal parties 38. What is covered by "Business Disruption and
System Failures" in operational risk
Answer:: a) Losses from acts inconsistent with classification?
employment, health, or safety laws a) Losses from diversity/discrimination events
involving business disruption
35. What is encompassed by "Clients, Products, b) Losses from failed transaction processing
and Business Practices" in operational risk c) Losses from disruption of business or system
classification? failures
a) Losses from acts inconsistent with d) Losses from acts intended to defraud,
employment, health, or safety laws misappropriate property, or circumvent
b) Losses from unintentional or negligent failure regulations
to meet professional obligations
c) Losses arising from diversity/discrimination Answer:: c) Losses from disruption of business
events involving clients or system failures
d) Losses from unintentional or negligent failure
to meet professional obligations
ions to specific
clients or from the nature or design of a product
Answer:: d) Losses from unintentional or

negligent failure to meet professional
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39. What is included in "Execution, Delivery, and a) February 2011

Process Management" in operational risk b) June 2011
classification? c) February 2003
a) Losses from natural disasters or damage to d) June 2003
physical assets
b) Losses from disruption of business or system Answer: c) February 2003
failures
c) Losses from failed transaction processing or 43. What document replaced the original
process management, from relations with trade principles outlined in February 2003?
counter parties and vendors a) Principles for the Sound Management of
d) Losses from acts intended to defraud, Operational Risk and the e Role of Supervision
misappropriate property, or circumvent (2011)
regulations b) Basel III Accord
c) Basel II Framework
Answer:: c) Losses from failed transaction d) Basel I Accord
processing or process management, from
relations with trade counter parties and vendors Answer:: a) Principles for the Sound
Management of Operational Risk and the Role
40. Which operational risk category involves of Supervision (2011)
losses arising from relations with trade counter
parties and vendors? 44. According to the replaced principles issued
a) Business Disruption and System Failures in June 2011, who uses them when evaluating
b) Clients, Products, and Business Practices operational risk management policies and
c) Damage to Physical Assets practices?
d) Execution, Delivery, and Process a) Banks only
Management b) Supervisory authorities only
c) Both banks and supervisory authorities
Answer:: d) Execution, Delivery, and Process d) Investors
Management
Answer:: c) Both banks and supervisory
41. What does "Business
iness Disruption and System authorities
Failures" encompass in operational risk?
a) Losses from natural disasters or damage to 45. When were the 'Principles
rinciples for the Sound
physical assets Management of Operational Risk and the Role
b) Losses from failed transaction processing of Supervision' issued?
c) Losses from disruption of business or system a) February 2011
failures b) June 2011
d) Losses from diversity/discrimination
y/discrimination events c) February 2003
involving business disruption d) June 2003
Answer:: c) Losses from disruption of business Answer: b) June 2011

or system failures
42. When were the original principles for the

effective management and supervision of
operational risk outlined by the Basel
Committee on Banking Supervision?
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46. What is the purpose of the principles a) Senior management

outlined by the Basel Committee on Operational b) Operational risk managers
Risk Management? c) The board of directors
a) To replace Basel I Accord d) External auditors
b) To provide a framework for the effective
management and supervision of operational risk Answer:: c) The board of directors
c) To set guidelines for credit risk management
d) To regulate market risk 50. What factors influence the choice of the
operational risk management framework, as
Answer: b) To provide a framework
ork for the mentioned in Principle 2?
effective management and supervision of a) The bank's location
operational risk b) The bank's profitability
c) The bank's risk profile, size, and
an complexity
47. What is emphasized in Principle 1 of the d) The bank's marketing strategies
revised operational risk management
principles? Answer:: c) The bank's risk profile, size, and
a) Banks should develop a comprehensive risk complexity
management framework.
b) The board of directors should establish a 51. What should the corporate culture be
strong risk management culture. guided by, according to Principle 1?
c) The risk management framework should be a) Profitability
fully integrated into the bank's overall risk b) Professional and responsible behavior
management processes. c) Risk aversion
d) Senior management should lead the d) Market trends
development of operational risk policies.
Answer:: b) Professional and responsible
Answer: b) The e board of directors should behavior
establish a strong risk management culture.
52. What is the primary responsibility of the
48. What does Principle 2 highlight in board of directors according to Principle 3?
operational risk management? a) Implementing operational risk policies
a) Banks should establish a corporate culture. b) Reviewing risk appetite and tolerance
b) The board of directors should take the lead in c) Establishing,
lishing, approving, and periodically
establishing a strong
ong risk management culture. reviewing the Framework
c) The risk management framework should be d) Overseeing day-to-day
day risk management
independent of the bank's overall risk activities
management processes.
d) Banks should implement standardized risk Answer:: c) Establishing, approving, and
management processes. periodically reviewing the Framework
Answer:: c) The risk management framework

should be fullyy integrated into the bank's overall
risk management processes.
49. According to Principle 1, who is expected to

take the lead in establishing a strong risk
management culture?
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53. What is the board of directors' role in a) Implementing a complex governance

overseeing senior
ior management, as per Principle structure
3? b) Developing a governance
overnance structure for
a) Micromanaging day-to-day day operations approval by the board of directors
b) Ensuring profitability targets are met c) Delegating governance decisions to lower
c) Ensuring policies, processes, and systems are management
implemented effectively d) Ignoring the governance structure
d) Delegating all operational decisions to senior
management Answer:: b) Developing a governance structure
for approval by the board of directors
Answer:: c) Ensuring policies, processes, and
systems are implemented effectively 58. What qualities should the governance
structure developed by senior management
54. According to Principle 4, what should the possess, according to Principle 5?
board of directors approve and review? a) Complex and ambiguous
a) Annual budget b) Transparent and consistent
b) Risk appetite and tolerance statement for c) Opaque and inconsistent
operational risk d) Delegated and decentralized
c) Marketing strategies
d) Employee performance metrics Answer:: b) Transparent and consistent
Answer:: b) Risk appetite and tolerance 59. What is the focus of Principle 6 in the risk
statement for operational risk management environment?
a) Financial risk assessment
55. What does the risk appetite and tolerance b) Identification and assessment of operational
statement articulate, as mentioned in Principle risk
4? c) Market risk analysis
a) Profitability goals d) Credit risk mitigation
b) Nature, types, and d levels of operational risk
c) Marketing plans Answer:: b) Identification and assessment of
d) Shareholder dividends operational risk
Answer:: b) Nature, types, and levels of 60. What does Principle 6 emphasize regarding
operational risk operational risk identification and assessment?
a) Focusing only on products
56. In Principle 3, what does the board of b) Assessing only the visible risks
directors periodically review? c) Ensuring inherent risks and incentives are well
a) Operational risk incidents understood
b) Annual financial statements d) Ignoring the assessmentt of processes
c) The Framework
d) Employee salaries Answer:: c) Ensuring inherent risks and
incentives are well understood
Answer: c) The Framework
57. According to Principle 5, what is the

responsibility of senior management regarding
the governance structure?
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61. Whose approval is required for the 65. According to Principle 9, what should banks
governance structure developed by senior have to ensure a strong control environment?
management, according to Principle 5? a) Only external controls
a) Regulatory authorities b) Appropriate risk mitigation and/or transfer
b) External auditors strategies
c) Board of directors c) Policies, processes, and systems
d) Shareholders d) No controls are necessary
Answer: c) Board of directors Answer:: c) Policies, processes, and systems
62. What is the focus of Principle 7 in the risk 66. What is the purpose of the approval process
management environment? mentioned in Principle 7?
a) Regular monitoring of operational risk a) To delay the implementation of new products
b) Approval process for new products, activities, b) To assess inherent risks in existing products
processes, and systems c) To fully assess operational risk in new
c) Implementing control and mitigation products, activities, processes, and systems
strategies d) To avoid the approval of any new products
d) Assessing inherent risks in existing products
Answer:: c) To fully assess operational risk in
Answer:: b) Approval process for new products, new products, activities, processes, and systems
system
activities, processes, and systems
67. What is the focus of Principle 10 in
63. According to Principle 8, what should senior operational risk management?
management implement to o regularly monitor a) Regular monitoring of operational risk
operational risk profiles and exposures? b) Implementation of control and mitigation
a) Annual audits strategies
b) Employee training programs c) Business resiliency and continuity plans
c) A robust control environment d) Identification and assessment of risks
d) A monitoring process
Answer:: c) Business resiliency and continuity
Answer: d) A monitoring process plans
64. What levels should have appropriate 68. What does Principle 11 emphasize regarding
reporting mechanisms,
sms, as mentioned in a bank's public disclosures?
Principle 8? a) Disclosing detailed financial information
a) Board, regulatory authorities, and external b) Disclosing only positive outcomes
auditors c) Allowing stakeholders to assess the approach
appr
b) Senior management, business line levels, and to operational risk management
shareholders d) Concealing information related to operational
c) Board, senior management, and business line risk
levels
d) Operational staff, middle management, and Answer:: c) Allowing stakeholders to assess the
external consultants approach to operational risk management
Answer:: c) Board, senior management, and

business line levels
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69. Why should banks have business resiliency 73. What recognition does Basel II provide
and continuity plans, according
ing to Principle 10? regarding the measurement of operational
oper
a) To limit losses in the event of severe business losses?
disruption a) Operational risk is easy to measure
b) To eliminate the need for operational risk b) There are no difficulties in estimating
management probabilities
c) To increase the complexity of business c) Basel II does not address operational risk
operations quantification
d) To bypass the need for public disclosures d) Options are provided for capital allocation
purposes
Answer: a) To limit
mit losses in the event of severe
business disruption Answer: d) Options are provided
ovided for capital
allocation purposes
70. What is the key purpose of a bank's public
disclosures, as mentioned in Principle 11? 74. What makes estimating the probability of
a) To showcase profitability operational risk events challenging?
b) To hide operational risks a) Predictable behavior patterns
c) To inform competitors b) Statistically normal distribution
d) To allow stakeholders to assess the approach c) Unusual event occurrences
to operational risk management d) The complex nature of operational
operationa risk
Answer:: d) To allow stakeholders to assess the Answer:: d) The complex nature of operational
approach to operational risk management risk
71. Which principle focuses on a bank's ability to 75. What is difficult to estimate in operational
operate on an ongoing basis? risk quantification?
a) Principle 8 a) Financial losses
b) Principle 9 b) Probability of an event resulting in losses
c) Principle 10 c) Statistically normal distribution
d) Principle 11 d) Predictable behaviorr patterns
Answer: c) Principle 10 Answer:: b) Probability of an event resulting in

losses
72. Why is operational risk quantification
considered challenging? 76. Why is the behavior pattern of operational
a) It follows a statistically normal distribution risk challenging for quantification?
pattern a) It is predictable
b) The behavior pattern does not follow a b) It follows a normal distribution
statistically normal distribution c) There are well-defined
defined probabilities
c) It has well-defined
defined probabilities for all events d) It does not follow a statistically normal
d) It primarily involves financial losses distribution
Answer:: b) The behavior pattern does not Answer:: d) It does not follow a statistically
follow a statistically normal distribution normal distribution
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77. What are the three approaches outlined by 81. According to the Basic Indicator Approach,
Basel II for operational risk measurement? what is excluded when calculating the average
a) Basic Approach, Intermediate Approach, capital requirement?
Advanced Approach a) Operational losses
b) The Easy Approach, Standard Approach, b) Net interest income
Complex Approach c) Negative or zero annual
nual gross income figures
c) The Basic Indicator Approach, Standardized d) Total assets
Approach, Advanced Measurement Approaches
d) The Simple Approach, Regular Approach, Answer:: c) Negative or zero annual gross
Sophisticated Approach income figures
Answer: c) The Basic Indicator

or Approach, 82. How many business lines are considered in
Standardized Approach, Advanced the Standardised Approach for operational risk
Measurement Approaches measurement?
a) 6
78. Which of the following approaches is based b) 8
on operational loss measurement? c) 10
a) Basic Indicator Approach d) 12
b) Standardized Approach
c) Advanced Measurement Approaches (AMA) Answer: b) 8
d) Easy Measurement Approach
83. What is the capital charge calculation based
Answer: c) Advanced Measurement on in the Standardised Approach for each
Approaches (AMA) business line?
a) Total assets
79. What is the basis for the Basic Indicator b) Number of employees
Approach and the Standardized Approach? c) Gross income
a) Asset value d) Net profit
b) Operational loss measurement
c) Income generated Answer: c) Gross income
d) Number of employees
84. What is the factor (beta) assigned to the
Answer: c) Income generated Corporate finance business
siness line in the
Standardised Approach?
80. How is the capital requirement calculated a) 12%
under the Basic Indicator Approach? b) 15%
a) Fixed percentage of assets c) 18%
b) Fixed percentage of operational losses d) 20%
c) Fixed percentage of positive annual gross
income Answer: c) 18%
d) Fixed percentage of net interest
rest income
Answer:: c) Fixed percentage of positive annual

gross income
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85. Which business line has the lowest beta Answer:: b) Operation profiling
factor in the Standardised Approach?
a) Corporate finance 90. How is the risk measure determined in the
b) Retail banking AMA?
c) Asset management a) Supervisory approval
d) Trading and sales b) Fixed formula provided by Basel II
c) Bank's board of directors
ectors decision
Answer: c) Asset management d) Internal operational risk measurement
system
86. How is the capital charge calculated for each
business line in the Standardised Approach? Answer:: d) Internal operational risk
a) Multiplying net profit by the beta factor measurement system
b) Multiplying total assets by the beta factor
c) Multiplying gross income by the beta factor
f 91. What is the second step in the Operational
d) Multiplying the number of employees by the Profiling (OP) process?
beta factor a) Quantification of operational risks
b) Identification of risk
sk concentrations
Answer:: c) Multiplying gross income by the c) Strategy formulation for risk management
beta factor d) Prioritization of operational risks
87. What does AMA stand for in the context of Answer:: d) Prioritization of operational risks
operational risk measurement?
a) Advanced Measurement Approach 92. What does the estimated level of
b) Automated Management Assessment
ssessment operational risk depend on?
c) Appraisal and Monitoring Analysis a) Only estimated potential financial impact
im
d) Accelerated Mitigation Algorithm b) Only estimated impact of internal controls
c) Both estimated probability of occurrence and
Answer:: a) Advanced Measurement Approach estimated potential financial impact
d) Historical frequency of occurrence
88. What is the regulatory capital requirement
under the AMA based on? Answer:: c) Both estimated probability of
a) Fixed percentage of annual gross income occurrence and estimated potential financial
fina
b) Internal operational
rational risk measurement impact
system
c) Total assets of the bank 93. How is probability mapped in the scale of 5
d) Number of employees in the bank for operational risk assessment?
a) 1 implies high risk, 5 implies negligible risk
Answer: b) Internal operational risk b) 1 implies very high risk, 5 implies negligible
measurement system risk
c) 1 implies negligible risk, 5 implies very high
89. What is the first step in the Generic risk
Measurement Approach under the AMA? d)) 1 implies low risk, 5 implies very high risk
a) Risk-based audit
b) Operation profiling Answer:: c) 1 implies negligible risk, 5 implies
c) Risk concentration identification very high risk
d) Quantitative risk analysis
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94. What is the basis for estimating the d) Estimated

ed probability of occurrence *
potential financial impact of operational risk? Estimated potential financial impact * Estimated
a) Number of employees in the organization impact of internal controls
b) Severity of historical impact
c) Fixed formula provided by regulatory Answer:: d) Estimated probability of occurrence
authorities * Estimated potential financial impact *
d) Total assets of the organization Estimated impact of internal controls
Answer:: b) Severity of historical impact 99. If the probability

ity of occurrence is 2
(Medium), the potential financial impact is 4
95. How many levels are typically used to map (Very High), and the impact of internal controls
the estimated probability of occurrence and is 50%, what is the estimated level of
potential financial
nancial impact in operational risk operational risk?
assessment? a) 00
a) 3 b) 00
b) 4 c) 00
c) 5 d) 00
d) 6
Answer: b) 00
Answer: c) 5
100. What is the common factor among liquidity
li
96. In the scale of 5, what does a score of 3 risk, interest rate risk, market risk, credit risk,
imply for estimated probability of occurrence? and operational risks in integrated risk
a) Low risk management?
b) Medium risk a) Upside impact
c) High risk b) Mitigation strategies
d) Very high risk c) Downside impact on revenues
d) Systematic risk
Answer: b) Medium risk
Answer:: c) Downside impact on revenues
97. How is the estimated impact of internal
controls expressed in relation to total control? 101. What does integrated risk management
a) As a percentage involve in the banking industry?
b) As a whole number a) Managing only credit risk
c) As a decimal b) Managing only market risk
d) As a fraction c) Managing all risks associated with various
activities across the organization
Answer: c) As a decimal d) Managing risks associated with a single
business line
98. What is the formula for the estimated level
of operational risk? Answer:: c) Managing all risks associated with
a) Estimated probability of occurrence * various activities across the organization
Estimated potential financial impact
b) Estimated potential financial impact *
Estimated impact of internal controls
c) Estimated probability of occurrence +
Estimated potential financial impact
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102. Why is risk management considered a basic b) By decentralizing risk information

necessity for financial institutions? c) By facilitating greater transparency for
fo
a) It is a regulatory requirement investors and regulators
b) It is optional for survival d) By limiting access to risk data
c) Central to success and survival
d) It only applies to large institutions Answer:: c) Facilitates greater transparency for
investors and regulators
Answer:: c) Central to success and survival
107. What is a potential outcome of effective
103. What does an integrated approach to risk Integrated Risk Management?
management involve? a) Decreases revenue and earnings growth
a) Decentralizing risk exposure b) Hinders corporate strategy
b) Limiting risk exposure c) Enhances revenue and earnings growth
c) Centralizing the process of supervising risk d) Increases downside risk potential
exposure
d) Ignoring risk exposure Answer:: c) Enhances revenue and earnings
growth
Answer:: c) Centralizing the process of
supervising risk exposure 108. In the context of Integrated Risk
Management, what is the role of strategy?
104. What is the primary purpose of an ongoing a) Ignoring risk management
business process in risk management? b) Minimizing risk exposure
a) Avoiding risk c) Integration of risk management as a key
b) Transferring risk corporate strategy
c) Absorbing risk d) Decentralizing risk decisions
d) Identifying, measuring, and managing risk
across all business units Answer:: c) Integration of risk management as a
key corporate strategy
Answer:: d) Identifying, measuring, and
managing risk across all business units 109. What organizational position is
recommended for accountability in risk
105. What is one of the benefits of Integrated management?
Risk Management in terms of strategicc a) Chief Financial Officer
alignment? b) Chief Operating Officer
a) Isolates strategic aspects from operational c) Chief Risk Officer
activities d) Chief Executive Officer
b) Aligns strategic aspects of risk with day
day-to-
day operational activities Answer: c) Chief Risk Officer
c) Ignores day-to-day
day operational activities
d) Decentralizes strategic decisions
Answer: b) Aligns strategicc aspects of risk with

day-to-day operational activities
106. How does Integrated Risk Management

contribute to transparency?
a) By hiding risks from investors and regulators
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110. What advice has RBI given regarding the 114. What aspect of risk management is
credit risk management function in banks? emphasized in the process outlined in the
a) Integrate credit risk management with the guidelines?
credit sanction process a) Financing risk
b) Separate credit risk management function b) Assessing risk
from the credit sanction process c) Human resource management
c) Eliminate credit risk management altogether d) Marketing strategies
d) Decentralize credit risk management
Answer: b) Assessing risk
Answer: b) Separate
eparate credit risk management
function from the credit sanction process 115. To whom does the Chief Risk Officer (CRO)
report, as per the guidelines?
111. Why has RBI advised banks to follow a) Chief Financial Officer
uniform practices in credit risk management? b) Board of Directors
a) To promote diverse practices c) MD or CEO of the Bank
b) To discourage best practices d) Risk Management Department
c) To align risk management with best practices
d) To reduce accountability Answer:: c) MD or CEO of the Bank
Answer:: c) To align risk management with best 116. What is the apex body responsible for
practices managing the entire risks of the bank according
to the organization structure?
112. What is the significance of the Chief Risk a) Risk Management Department
Officer (CRO) position according to the b) Chief Risk Officer
guidelines? c) Risk Management Committee
a) CRO is an optional position d) Board of Directors
b) CRO reports to the Chief Financial Officer
c) CRO controls and coordinates the functions of Answer: d) Board of Directors
the Risk Management Department
d) CRO reports directly to the MD or CEO of the 117. How should d risk management and related
Bank policies be developed, according to the
guidelines?
Answer:: d) CRO reports directly to the MD or a) Using a bottom-up up approach
CEO of the Bank b) Independently without considering other
policies
113. What should be the role of the Chief Risk c) Utilizing a top-down
down approach
Officer (CRO) according to the guidelines? d) Exclusively by the Risk Management
a) Manage human resources Committee
b) Develop marketing strategies
c) Define the role and responsibilities of the CRO Answer: c) Utilizing a top-down
down approach
d) Control and coordinate the functions of the
Risk Management Department
Answer: d) Control
ol and coordinate the
functions of the Risk Management Department
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118. What is the purpose of an integrated risk a) Decentralized information technology

limit structure according to 'Best Practices'? architecture
a) To increase overall exposures b) Inconsistent information technology
b) To delegate authority architecture
c) To communicate risk appetite c) Information technology architecture that
d) To operate in silos aligns with integration
d) Avoidance of information technology
Answer: c)) To communicate risk appetite architecture
119. Who should assist in the maintenance of Answer: c) Information technology

ology architecture
overall exposures at acceptable levels, that aligns with integration
according to the 'Best Practices' limit structure?
a) Chief Risk Officer
b) Risk Management Committee
c) Board of Directors
d) Regulatory Authorities
Answer:: b) Risk Management Committee
120. What is the purpose of adopting a common

language of risk across all risk categories in
integrated risk management?
a) To increase complexity
b) To enhance confusion
c) To facilitate communication and
understanding
d) To limit risk quantification
Answer:: c) To facilitate communication and

understanding
121. 30. What is the objective of bank--wide risk

reports in an integrated risk management
framework?
a) To increase complexity
b) To estimate total exposure
xposure to financial
markets
c) To limit risk exposure
d) To avoid risk quantification
Answer:: b) To estimate total exposure to

financial markets
122. What is essential for supporting an

integrated risk management framework,
according to the guidelines?
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CHAPTER 17 -: Liquidity Risk Management

1. What is liquidity in the context of banking? c) The total assets of a bank
d) The profitability of a bank's investments
a) The ease with which a bank can invest in
long-term assets Answer:: b) Having enough cash to meet current
b) The ability of a bank to fund, increase in needs
assets, and meet cash and collateral obligations
c) The speed at which a bank can generate 5. What is liquidity risk in banking?
profits
d) The level of risk associated with a bank's a) The risk of investing in highly liquid assets
financial condition b) The risk of not generating enough profits
from assets
Answer:: b) The ability of a bank to fund, c) The current and prospective risk to a bank's
increase in assets, and meet cash and collateral earnings and equity arising from its inability to
obligations meet obligations when due
d) The risk of currency fluctuations
uations affecting a
2. How is liquidity risk defined in the context of bank's assets
banking?
Answer:: c) The current and prospective risk to a
a) The risk associated with investing in highly bank's earnings and equity arising from its
liquid assets inability to meet obligations when due
b) The risk of not generating enough profits
from assets 6. Why is effective liquidity risk management
c) The inability of a bank to meet obligations essential for banks?
without affecting its financial condition
d) The risk of currency fluctuations affecting a a) To maximize profits
bank's b) To minimize liabilities
c) To raise sufficient funds and manage liquidity
3. Why is liquidity management important in the to meet obligations promptly and at a
banking sector? reasonable cost
d) To eliminate complexity in the banking
a) To maximize profits system
b) To minimize expenses
c) Because a liquidity crisis in a single institution Answer:: c) To raise sufficient funds and manage
can have systemic implications liquidity to meet obligations
gations promptly and at a
d) To reduce the complexity of the banking reasonable cost
system
Answer:: c) Because a liquidity crisis in a single

institution can have systemic implications
4. How is liquidity defined in simple terms?
a) The complexity
lexity of a bank's financial structure
b) Having enough cash to meet current needs
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7. Why is it mentioned that "one size does not c)) To manage mismatches in maturing assets
fit all" in liquidity risk management for banks? and maturing liabilities
d) To eliminate complexity in banking
a) Because banks vary in size, complexity, and operations
liquidity risk profile
b) Because there is only one effective strategy Answer:: c) To manage mismatches in maturing
for all banks assets and maturing liabilities
c) To emphasize the need for standardization in
banking practices 11. Why is mismatching considered an inherent
d) Because regulators mandate different feature of banking?
approaches for each bank
a) Because banks aim to minimize risks
Answer:: a) Because banks vary in size, b) Because banks need to manage mismatches
complexity, and liquidity risk profile to function effectively
c) Because regulators mandate mismatching in
8. What is the significance
icance of looking at the issue banking operations
of Liquidity Risk Management from the d) Because it simplifies the banking system
perspective of maturing liabilities and maturing
assets? Answer:: b) Because banks need to manage
m
mismatches to function effectively
a) To maximize profits
b) To identify mismatches in the timing of 12. Why are banks referred to as 'Maturity
inflows and outflows Transformation Agents'?
c) To minimize expenses
d) To eliminate complexity
mplexity in banking a) Because they transform assets into liabilities
operations b) Because they transform liabilities into assets
c) Because they manage mismatches in
Answer:: b) To identify mismatches in the timing maturing assets and maturing liabilities
of inflows and outflows d) Because they eliminate mismatches in their
operations
9. How is a maturing liability defined in the
context of Liquidity Risk Management? Answer:: c) Because they manage mismatches
in maturing assets and maturing liabilities
a) An increase in the bank's assets
b) An outflow of funds
c) A decrease
ecrease in the complexity of banking
operations
d) A decrease in the profitability of the bank
Answer: b) An outflow of funds
10. What is the primary reason for the need for

Liquidity Risk Management?
b) To minimize liabilities
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13. Why is it mentioned that if banks had c) To maintain both solvency and liquidity
perfectly matched portfolios,
olios, they would d) To simplify the operations of the bank
neither make money nor need treasury
managers to run their business? Answer:: c) To maintain both solvency and
liquidity
a) Because perfectly matched portfolios result in
decreased profitability 17. In what situations could a ban
bank be described
b) Because perfectly matched portfolios as "neither solvent nor liquid"?
eliminate the need for treasury managers
c) Because mismatched
smatched portfolios are essential a) When it has mismatched portfolios
for bank profitability b) When it has perfectly matched portfolios
d) Because treasury managers are not skilled in c) When it has a negative net worth
managing perfectly matched portfolios d) When it is both solvent and liquid
Answer:: b) Because perfectly matched Answer:: a) When it has mismatched portfolios

portfolios eliminate the need for treasury
managers 18. Why is having the best Liquidity Risk
Management practices important in banks?
14. How is a bank defined as solvent?
a) If it has a positive net worth b) To minimize expenses
b) If its total realizable value of assets is more c) To prevent reputational risk and negative
than its outside liabilities publicity
c) If it has a negative net worth d) To eliminate the need for cash reserves
d) If it has a large number of assets
Answer: c) To prevent reputational
ional risk and
Answer:: b) If its total realizable value of assets negative publicity
is more than its outside liabilities
19. What is the potential consequence of telling
15. What does it mean when a bank is described a depositor to withdraw their deposit later due
as "liquid but not solvent"? to non-availability of cash?
a) The bank has a positive net worth a) Increased profitability

b) The bank has a negative net worth b) Reputational Risk or negative publicity for the
c) The bank has a high level of cash reserves but bank
a negative net worth c) Improved liquidity management
d) The bank has a negative cash flow d) Enhanced customer satisfaction
Answer:: c) The bank has a high level of cash Answer:: b) Reputational Risk or negative
reserves but a negative net worth publicity for the bank
16. Why is effective liquidity management

crucial for increasing the profitability and long
long-
term viability/solvency of a bank?
a) To
o eliminate the need for treasury managers
b) To decrease the bank's profitability
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20. Why could a Liquidity problem in a bank be d) They only focus on liquidity management
the first symptom of financial trouble? within their own operations
a) Because it leads to increased profita

profitability Answer: c) They are significantt liquidity
b) Because it signals effective liquidity providers
management
c) Because it creates reputational risk for the 24. Why do banks need sound liquidity risk
bank management systems to play their role as
d) Because it may indicate underlying financial liquidity providers effectively?
difficulties
a) To eliminate all financial risks
Answer:: d) Because it may indicate underlying b) To increase their profitability
financial difficulties c) To ensure stability in their own operations
operatio
d) To navigate disruptions and maintain liquidity
21. What could
ould happen to a bank if all in the financial system
depositors queue up demanding their money
back, regardless of the bank's strength? Answer:: d) To navigate disruptions and
maintain liquidity in the financial system
a) The bank would experience increased
profitability 25. What is an example of the global
b) The bank would face reputational risk and repercussions of liquidity disturbances?
may not survive
c) The bank would eliminate allll liquidity a) The recent sub-prime
prime crisis in the US and its
problems impact on other countries
d) The bank would be unaffected b) The stability of individual banks
c) The ease of cross-border
border flows of funds
Answer:: b) The bank would face reputational d) The absence of liquidity risk in the financial
risk and may not survive system
Answer: a) The recent sub-prime

prime crisis in the US
22. How can disruptions on a bank's balance and its impact on other countries
sheet affect the financial system?
26. Why is Liquidity Risk Management
a) They have no impact on the financial system considered of critical importance to regulators?
b) They can cause systemic disruptions
c) They only affect individual banks a) To increase profits for banks
d) They improve the overall stability of the b) To simplify banking operations
financial system c) To ensure stability in the financial system
d) To eliminate the need for cross
cross-border flows
Answer:: b) They can cause systemic disruptions of funds
23. What role do banks play in the financial Answer:: c) To ensure stability in the financial
system in terms of liquidity
ity provision? system
a) They have a minor role in liquidity provision

b) They play no role in liquidity provision
c) They are significant liquidity providers
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27. What are some key considerations in c) The efficacy of processes for successful
Liquidity Risk Management? execution of solutions
d) The extent of volatility of deposits
a) The availability of liquid assets, extent of
volatility of deposits, and market reputation Answer:: c) The efficacy of processes for
b) Thee historical trend of stability of deposits, successful execution of solutions
quality of maturing assets, and the impact of
off-balance sheet exposures 31. What should be kept in view regarding the
c) The degree of reliance on volatile sources of availability, accessibility, and cost of liquidity in
funding, level of diversification of funding Liquidity Risk Management?
sources, and contingency plans
d) All of the above a) The impact
pact of changes in market conditions
b) The degree of reliance on volatile sources of
Answer: d) All of the above funding
c) The existence of early warning systems
28. What is one of the issues to be considered d) All of the above
while managing liquidity?
Answer: d) All of the above
a) The profitability of assets
b) The extent of operational liquidity, reserve 32. What is Funding Liquidity Risk in banking?
liquidity, and contingency liquidity required
c) The complexity of the balance sheet a) The risk of losing profits due to market
d) The historical trend of deposits disruptions
b) The risk that a bank will not be able to
Answer:: b) The extent of operational liquidity, efficiently meet expected and unexpected cash
reserve liquidity, and contingency liquidity flows and collateral needs without affecting its
required operations or financial condition
c) The risk associated with market volatility
29. What is a factor to be assessed regarding d) The risk of insufficient market depth
the impact of changes in the market or
economic conditions on liquidity needs? Answer:: b) The risk that a bank will not be able
to efficiently meet expected and unexpected
a) The availability of liquid assets cash flows and collateral needs without
b) The historical trend of stability of deposits affecting its operations or financial condition
c) The existence of early warning systems
d) The market reputation of the bank
Answer:: c) The existence of early warning

systems
30. In Liquidity Risk Management, what is a

consideration related to the quality of maturing
assets?
a) The historical trend of stability of deposits

b) The impact of off-balance
balance sheet exposures
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33. What is Market Liquidity

quidity Risk in banking? 36. Why is Market Liquidity Risk concerned with
the prevailing market price?
a) The risk of insufficient market depth
b) The risk of losing profits due to market a) To maximize profits for the bank
disruptions b) To efficiently offset orr eliminate positions in
c) The risk that a bank cannot easily offset or the market
eliminate a position at the prevailing market c) To reduce the impact of market disruptions
price d) To ensure market depth
d) The risk associated with markett volatility
Answer:: b) To efficiently offset or eliminate
Answer:: c) The risk that a bank cannot easily positions in the market
offset or eliminate a position at the prevailing
market price 37. When were the "Principles for Sound
Liquidity Risk Management and Supervision"
Super
34. How does Funding Liquidity Risk differ from published by the Basel Committee on Banking
Market Liquidity Risk? Supervision (BCBS)?
a) February 1999
a) Funding Liquidity Risk is associated with b) October 2007
market disruptions,
ons, while Market Liquidity Risk c) September 2008
is related to cash flows d) After the global financial crisis
b) Funding Liquidity Risk is about market depth,
while Market Liquidity Risk is about meeting Answer: c) September 2008
cash flows and collateral needs
c) Funding Liquidity Risk is about market 38. What did the Basel Committee on Banking
volatility, while Market Liquidity
dity Risk is about Supervision (BCBS) recognize
gnize as a result of the
financial condition global financial crisis?
d) Funding Liquidity Risk is about offsetting
positions, while Market Liquidity Risk is about a) The need for banks to reduce their liquidity
collateral needs b) The need for banks to improve their liquidity
risk management
Answer:: b) Funding Liquidity Risk is about c) The need for banks to focus on profitability
market depth, while Market Liquidity Risk is d) The need for banks to increase their risk
about meeting cash
sh flows and collateral needs exposure
35. What does Funding Liquidity Risk Answer:: b) The need for banks to improve their
encompass? liquidity risk management
a) Inadequate market depth and disruption 39. When did the Reserve Bank issue guidelines
b) The inability to offset positions in the market on Asset Liability Management (ALM) system,
c) The risk of not meeting cash flows and including liquidity risk management?
collateral needs efficiently
d) The risk associated with market volatility a) February 1999
b) October 2007
Answer:: c) The risk of not meeting cash flows c) September 2008
and collateral needs efficiently d) After the global financial crisis
Answer:: a) February 1999 and October 2007

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40. What is emphasized for the successful 43. What is the role of the Board of Directors
implementation of any risk management (BOD) in liquidity risk management?
process, including liquidity risk management?
a) To execute liquidity risk strategies
a) Reducing the commitment of top b) To decide the strategy, policies,
policies and
management procedures for managing liquidity risk
b) Demonstrating strong commitment from top c) To support the Asset Liability Management
management to integrate basic operations and (ALM) Support Group
strategic decision-making
making with risk management d) To oversee the Asset-Liability
Liability Management
c) Ignoring basic operations in the bank Committee (ALCO)
d) Isolating strategic decision-making
making from risk
management Answer:: b) To decide the strategy, policies, and
procedures for managing liquidity risk
Answer: b) Demonstrating strong commitment
from top management to integrate basic 44. What is the responsibility of the Board of
operations and strategic decision-making
making with Directors (BOD) concerning liquidity risk
risk management tolerance?
41. What is the role of top management in the a) To increase liquidity risk tolerance
successful implementation of risk management b) To clearly understand and communicate
processes? liquidity risk tolerance at all levels of
management
a) To solely focus on strategic decision-making
decision c) To delegate liquidity risk tolerance decisions
b) To reduce the commitment to risk to the Risk Management Committee
management d) To ignore liquidity risk tolerance in decision-
decision
c) To demonstrate strong commitment and making
integrate basic operations with risk
management Answer:: b) To clearly understand and
d) To delegate risk management responsibilities communicate liquidity risk tolerance at all levels
to lower levels of management
Answer: c) To demonstrate strong commitment 45. What should the Board of Directors (BOD)
and integrate basic operations with risk ensure regarding the nature of liquidity risk in
management the bank?
42. What is the first level of the organizational a) Ignore the liquidity risk profile of branches,
setup for liquidity risk management? subsidiaries, and associates
b) Clearly understand the liquidity risk profile of
a) Asset Liability Management (ALM) Support all branches, subsidiaries, and associates
Group c) Delegate understanding of liquidity risk to the
b) Risk Management Committee Risk Management Committee
c) Board of Directors (BOD) d) Increase liquidity risk without any assessment
d) Asset-Liability
(ALCO) Answer:: b) Clearly understand the liquidity risk
profile of all branches, subsidiaries, and
Answer: c) Board of Directors (BOD) associates
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46. Which committee is mentioned

ntioned in the b) To disregard risk tolerance/limits
passage as being part of the organizational c) To
o ensure adherence to risk tolerance/limits
setup for liquidity risk management? set by the Board
d) To delegate risk tolerance/limits decisions to
a) Asset-Liability
Liability Management Committee the Risk Management Committee
(ALCO)
b) Risk Management Committee Answer:: c) To ensure adherence to risk
c) Asset Liability Management (ALM) Support tolerance/limits set by the Board
Group
d) All of the above 50. What is the role of the Asset
Asset-Liability
Management Committee (ALCO) in
Answer: d) All of the above implementing the liquidity risk management
strategy of the bank?
47. Who is responsible for evaluating the overall
risks faced by the bank, including liquidity risk? a) To set its own liquidity risk management
strategy
a) Asset-Liability
Liability Management Committee b) To ignore the liquidity risk management
(ALCO) strategy
b) Risk Management Committee c) To implement the liquidity risk management
c) Board of Directors (BOD) strategy
ategy in line with the bank's decided risk
d) Asset Liability Management (ALM)
LM) Support management objectives and risk tolerance
Group d) To delegate implementation to the Risk
Management Committee
Answer:: b) Risk Management Committee
Answer:: c) To implement the liquidity risk
48. What is the composition of the Risk management strategy in line with the bank's
Management Committee? decided risk management
ent objectives and risk
tolerance
a) Chief Executive Officer (CEO)/Chairman only
b) Chief Executive Officer (CEO)/Chairman and 51. What should be included in the risks
Managing Director (CMD) only addressed by the Risk Management
c) Chief Executive
utive Officer (CEO)/Chairman, Committee?
Managing Director (CMD), and heads of credit,
market, and operational risk management a) Only liquidity risk
d) Chief Financial Officer (CFO) only b) Overall risks faced by the bank, including
liquidity risk
Answer: c) Chief Executive Officer c) Only market risk
(CEO)/Chairman, Managing Director (CMD), and d) Only credit risk
heads of credit, market,
ket, and operational risk
management Answer: b)) Overall risks faced by the bank,
including liquidity risk
49. What is the responsibility of the Asset
Asset-
Liability Management Committee (ALCO) with
respect to risk tolerance/limits set by the
Board?
a) To increase risk tolerance/limits

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52. What is the responsibility of the Asset c) Putting in place an effective liquidity risk
Liability Management (ALM) Support Group management policy
concerning liquidity risk management? d) Analyzing market conditions
a) Setting liquidity risk tolerance Answer:: c) Putting in place an effective liquidity

b) Analyzing, monitoring, and reporting
porting the risk management policy
liquidity risk profile to the ALCO
c) Implementing liquidity risk management 56. What is included in the framework for stress
strategy testing?
d) Overseeing the Risk Management Committee
a) Only liquidity planning
Answer:: b) Analyzing, monitoring, and b) Only formal contingent funding plan
reporting the liquidity risk profile to the ALCO c) Liquidity planning under alternative
scenarios/formal contingent funding plan
53. What is the primary role of the ALM Support d) Only management reporting
Group in preparing forecasts (simulations)?
Answer:: c) Liquidity planning under alternative
a) To predict market conditions accurately scenarios/formal contingent funding plan
b) To analyze operational risks
c) To demonstrate liquidity risk tolerance 57. What entities should the liquidity risk
d) To show the effect of various possible management policy address separately?
changes in market conditionss on the bank's
liquidity position a) Only legal entities
b) Only individual currencies
Answer:: d) To show the effect of various c) Legal entities, individual currencies, and
possible changes in market conditions on the business lines
bank's liquidity position d) Only business lines
54. What should the liquidity risk management Answer:: c) Legal entities, individual currencies,
policy spell out? and business lines
a) Only liquidity risk tolerance 58. What should the policy place limits on
b) Only funding strategies regarding the transfer of liquidity?
c) Liquidity risk tolerance, funding strategies,
prudential limits, and more a) Only business lines
d) Only stress testing framework b) Only individual currencies
c) Transfer of liquidity for legal entities and
Answer:: c) Liquidity risk tolerance, funding subsidiaries
strategies, prudential limits, and more d) Transfer of liquidity considering regulatory,
legal, and operational constraints
55. What is the first step towards liquidity
idity
management? Answer:: d) Transfer of liquidity considering
regulatory, legal, and operational constraints
a) Implementing liquidity risk management
strategies
b) Setting prudential limits
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59. Who shouldld oversee the establishment and d) To ignore stress scenarios
approval of policies, strategies, and procedures
to manage liquidity risk? Answer:: b) To withstand prolonged periods of
a) The Asset Liability Management (ALM) institution-specific and market--wide stress
Support Group events
b) The Risk Management Committee
c) The Board of Directors or its delegated 63. What is mentioned as a possible way to
committee specify risk tolerance levels for various
d) The individual business lines maturities?
Answer:: c) The Board of Directors or its a) Sensitivity analysis

delegated committee b) Flow approach
c) Stock approach
60. How often should the Board of Directors or d) Minimum survival horizons
its delegated committee review liquidity risk
management policies, strategies, and Answer: b) Flow approach
procedures?
64. How can risk tolerance be expressed in
a) Biannually terms of survival horizons?
b) Quarterly
c) Annually a) Only in terms of Central Bank or Government
d) Monthly intervention
b) Only under specific stress scenarios
Answer: c) Annually c) Only for flow approach
d) Under a range of severe but plausible stress
61. What should the liquidity risk tolerance set scenarios
by the Board of Directors define?
Answer:: d) Under a range of severe but
a) Only financial condition plausible stress scenarios
b) Only funding capacity
c) The level of liquidity risk the bank is willing to 65. What may be subject to a periodic review by
assume, reflectingng financial condition and the Board regarding risk tolerance?
funding capacity
d) Only regulatory constraints a) Flow approach only
b) Stock approach only
Answer:: c) The level of liquidity risk the bank is c) Sensitivity analysis only
willing to assume, reflecting financial condition d) Key assumptions
and funding capacity
Answer: d) Key assumptions
62. What is the purpose of liquidity risk
tolerance?
a) To maximize profits during normal times

b) To withstand prolonged periods of
institution-specific and market-wide
wide stress
events
c) To eliminate sensitivity analysis
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66. What does the risk tolerance ensure in c) Primary sources of funding for meeting daily
normal times? operating cash outflows, as well as expected
and unexpected cash flow fluctuations
a) To maximize profits d) Only daily operating cash
sh outflows
b) To withstand short-term
term stress events
c) To eliminate the need for sensitivity analysis Answer:: c) Primary sources of funding for
d) To manage liquidity in a way that the bank meeting daily operating cash outflows, as well
can withstandd a prolonged period of stress as expected and unexpected cash flow
events fluctuations
Answer:: d) To manage liquidity in a way that 70. What does the passage emphasize about the
the bank can withstand a prolonged period of diversity of markets, products, and jurisdictions
stress events in which banks operate?
67. What should the strategy for managing a) It is irrelevant to liquidity risk management
liquidity risk be appropriate for? b) It is not considered in the formulation of the
strategy
a) The profitability of the bank c) It should be considered in formulating the
b) The size of the bank strategy
c) The nature, scale, and complexity of a bank's d) It only affects profitability
activities
d) The diversity of products offered by the bank Answer:: c) It should be considered in
formulating the strategy
Answer:: c) The nature, scale, and complexity of
a bank's activities 71. Why is it essential for the strategy to be
appropriate for the nature, scale, and
68. What factors should banks consider in complexity of a bank's activities?
formulatingg their liquidity risk management
strategy? a) To eliminate the need for liquidity risk
management
a) Only legal structures b) To maximize profits
b) Only key business lines c) To ensure effective liquidityy risk management
c) Legal structures, key business lines, breadth d) To simplify banking operations
and diversity of markets, products, jurisdictions,
and regulatory requirements Answer:: c) To ensure effective liquidity risk
d) Only home country regulatory requirements management
Answer:: c) Legal structures, key business lines, 72. What is the first step in the management of
breadth and diversity of markets, products, liquidity risk?
jurisdictions, and regulatory requirements
a) Measurement
69. What should the strategy identify b) Monitoring
concerning daily operating cash outflows in the c) Identification
context of liquidity risk management? d) Mitigation
a) Only unexpected cash flow fluctuations Answer: c) Identification

b) Only primary sources of funding
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73. What should a bank define and identify d) To facilitate the process of measuring and
concerning liquidity risk? mitigating liquidity risk
a) Only on-balance sheet positions Answer:: d) To facilitate the process of

b) Only off-balance sheet positions measuring and mitigating liquidity risk
c) Liquidity risk for each major on and off-
off
balance sheet position, including the effect of 77. What are the two simple ways of measuring
embedded optionstions and other contingent liquidity?
exposures
d) Only contingent exposures a) Flow approach and stock
tock approach
b) Strategic approach and tactical approach
Answer:: c) Liquidity risk for each major on and c) Benchmark approach and ratio approach
off-balance
balance sheet position, including the effect d) Tactical approach and benchmark approach
of embedded options and other contingent
exposures Answer:: a) Flow approach and stock approach
74. What does the passage suggest should

shoul be 78. What is the primary focus of the stock
considered in the identification of liquidity risk? approach in evaluating liquidity?
a) Only on-balance sheet positions a) Forecasting liquidity at different points of

b) Only major off-balance
balance sheet positions time
c) All currencies in which a bank is active b) Calculating and comparing ratios like liquid
d) Only active currencies assets to short-term
term total liabilities, purchased
funds to total assets, core deposits to total
Answer:: c) All currencies in which a bank is assets, loan to deposit ratio, etc.
active c) Revealing
g the intrinsic liquidity profile of a
bank
75. In the context of liquidity risk management, d) Constructing a maturity ladder
what may affect a bank's sources and uses of
funds? Answer:: b) Calculating and comparing ratios
like liquid assets to short-term
term total liabilities,
a) Only embedded options purchased funds to total assets, core deposits to
b) Only on-balance sheet positions total assets, loan to deposit ratio, etc.
c) Only off-balance sheet positions
d) Embedded options and other contingent 79. What is a limitation of the stock approach?
exposures
a) It does not reveal the intrinsic liquidity profile
Answer:: d) Embedded options and other of a bank
contingent exposures b) It focuses too much on forecasting
c) It does not calculate ratios
76. What is the objective of defining and d) It simplifies the measurement process
identifying liquidity risk for each major position?
Answer: a) It doess not reveal the intrinsic
a) To eliminate liquidity risk entirely liquidity profile of a bank
b) To simplify the process of managing liquidity
risk
c) To monitor liquidity risk
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80. What does the flow approach focus on in

forecasting liquidity?
a) Today's liquidity requirements only

b) Liquidity requirements at different points of
time, including today, tomorrow, the day
thereafter, and beyond
c) A single specified time period
d) Benchmarking liquidity ratios
Answer:: b) Liquidity requirements at different

points of time, including today, tomorrow, the
day thereafter, and beyond
81. What does the maturity ladder constructed

constructe
under the flow approach help in tracking?
a) Stock approach
b) Intrinsic liquidity profile
c) Cash flow mismatches over a series of
specified time periods
d) Benchmark ratios
Answer:: c) Cash flow mismatches over a series

of specified time periods
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CHAPTER 18 -: Basel II Framework on Liquidity Standards

1. What is the primary objective of the Basel III d) Minimizing regulatory
ry compliance
international framework issued in December
2010? Answer:: c) Achieving funding liquidity
a) To enhance customer satisfaction

ion in the 5. What is the primary purpose of the Liquidity
banking sector Coverage Ratio (LCR) in the Basel III framework?
b) To promote a more resilient banking sector
c) To reduce the number of banks globally a) To maximize shareholder profits
d) To increase the complexity of banking b) To ensure banks have sufficient high-quality
high
operations liquid assets for short-term
term resilience
c) To regulate interest rates in the banking
Answer:: b) To promote a more resilient sector
banking sector d) To minimize regulatory compliance costs
2. The Basel Committee, in its framework,

amework, Answer:: b) To ensure banks have sufficient
prescribed two minimum standards. What are high-quality
quality liquid assets for short-term
short
these standards? resilience
a) Credit Risk and Operational Risk 6. How long is the acute stress scenario
b) Market Risk and Counterparty Credit Risk considered under the Liquidity Coverage Ratio
c) Liquidity Coverage Ratio (LCR) and Net Stable (LCR)?
Funding Ratio (NSFR)
d) Capital Adequacy Ratio and Return on Assets a) 15 days
b) 30 days
Answer:: c) Liquidity Coverage Ratio (LCR) and c) 60 days
Net Stable Funding Ratio (NSFR) d) 90 days
3. What does LCR stand for in the Basel III Answer: b) 30 days
framework?
7. What is the primary focus of the Net Stable
a) Loan Credit Rating Funding Ratio (NSFR) in the Basel III framework?
b) Liquidity Coverage Ratio
c) Leverage Capital Ratio a) Short-term liquidity
d) Long-term Credit Risk b) Long-term stability
c) Market risk mitigation
Answer: b) Liquidity Coverage Ratio d) Operational risk management
4. Which of the following is one of the Answer: b) Long-term stability

complementary objectives of the Basel III
framework?
a) Maximizing shareholder profits

b) Achieving environmental sustainability
c) Achieving funding liquidity
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8. What is the purpose of the NSFR? 12. What is emphasized under the LCR standard
during a significantly severe liquidity stress
a) To promote short-term resilience scenario?
b) To ensure banks have stable funding sources
over longer-term horizons a) Maximizing advertising revenue
c) To monitor credit risk exposures b) The importance of social media presence
d) To increase regulatory complexity c) Taking appropriate corrective action to
survive until day 30
Answer:: b) To ensure banks have stable funding d) Reducing operational costs
sources over longer-term horizons
Answer:: c) Taking appropriate corrective action
9. How many monitoring tools were prescribed to survive until day 30
in the Basel III framework for monitoring the
liquidity risk exposures of banks? 13. What is the minimum requirement for the
stock of liquid assets under the LCR standard to
a) Three enable a bank to survive until day 30 of a stress
b) Four scenario?
c) Five
d) Six a) It is not specified
b) Sufficient to survive until day 15
Answer: c) Five c) Sufficient to survive until day 30
d) Double the liquidity needs
10. What is the primary objective of the
Liquidity Coverage Ratio (LCR) standard? Answer:: c) Sufficient to survive until day 30
a) Maximizing shareholder profits 14. Under what assumption does the LCR
b) Ensuring a bank maintains a sufficient level of standard operate regarding the time available
unencumbered HQLAs LAs for liquidity needs for corrective action?
c) Reducing the complexity of banking
operations a) Corrective action is not assumed
d) Promoting long-term
term stability in the banking b) Corrective
ive action can be taken until day 45
sector c) Corrective action can be taken until day 60
d) Corrective action can be taken until day 30
Answer:: b) Ensuring a bank maintains a
sufficient level of unencumbered HQLAs for Answer:: d) Corrective action can be taken until
liquidity needs day 30
11 .Under the LCR standard, what is the

specified time horizon for a bank to meet its
liquidity needs?
a) 15 calendar days
b) 30 calendar days
c) 60 calendar days
d) 90 calendar days
Answer: b) 30 calendar days

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15. At what level are the Liquidity Coverage Answer:: c) Applicable on a stand-alone
stand basis for
Ratio (LCR) and
nd monitoring tools initially Indian operations only
applicable for Indian banks?
19. What is the recommended effort for Indian
a) Branch level banks
ks regarding the application of the LCR and
b) Consolidated level monitoring tools?
c) Regional level
d) Whole bank level (stand-alone
alone basis) a) Staying at the current level
b) Focusing only on regional operations
Answer: d) Whole bank level (stand-alone
alone c) Endeavoring to move over to meeting the
basis) standard at the consolidated level
d) Ignoring the application at the branch llevel
16. What is the suggested goal for Indian banks
regarding
egarding the application of the LCR and Answer:: c) Endeavoring to move over to
monitoring tools? meeting the standard at the consolidated level
a) Staying at the branch level 20. How is the Liquidity Coverage Ratio (LCR)
b) Meeting the standard at the regional level computed?
c) Moving over to meeting the standard at the
consolidated level a) LCR = Total Net Cash Outflows / Stock of
d) Focusing only on overseas operations High-Quality
Quality Liquid Assets (HQLAs)
b) LCR = Stock of HQLAs / Total Net Cash
Answer: c) Moving
ving over to meeting the Outflows over the next 30 calendar days
standard at the consolidated level c) LCR = Total Net Cash Outflows + Stock of
HQLAs
17. How are the LCR and monitoring tools d) LCR = HQLA * Cash Outflow (Next 30 days)
applicable for foreign banks operating as
branches in India? Answer:: b) LCR = Stock of HQLAs / Total Net
Cash Outflows over the next 30 calendar days
a) Only on a consolidated basis
b) Only at the branch level 21. What does an
n LCR value of 100% indicate?
c) Only for overseas operations
d) On a stand-alone
alone basis for Indian operations a) The bank is in financial distress
only b) The bank has surplus liquidity
c) The bank meets the minimum LCR
Answer: b) Only at the branch level requirement
d) The bank is at risk of a liquidity crisis
18. What is the scope of the LCR and monitoring
tools for foreign banks operating as branches in Answer:: c) The bank meets the minimum LCR
India? requirement
a) Applicable at the consolidated level

b) Applicable for overseas
verseas operations only
c) Applicable on a stand-alone
alone basis for Indian
operations only
d) Not applicable to foreign banks in India
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22.
2. When did the LCR requirement become c) As an effort
ort towards better liquidity risk
binding on banks? management
d) To minimize corrective actions
a) January 1, 2016
b) January 1, 2017 Answer:: c) As an effort towards better liquidity
c) January 1, 2018 risk management
d) January 1, 2015
27. When are banks allowed to fall below the
Answer: d) January 1, 2015 100% LCR requirement during a period of
financial stress?
23. What was the minimum LCR requirement for
Indian banks in the calendar year 2015? a) Never
b) Only during market-wide
wide shocks
a) 70% c) Only during bank-specific
specific stress
b) 80% d) During a period of financial stress, banks may
c) 90% use their stock of HQLA
d) 60%
Answer:: d) During a period of financial stress,
Answer: d) 60% banks may use their stock of HQLA
24. What was the minimum LCR requirement for 28. What is the immediate
te reporting
Indian banks in the calendar year 2019? requirement for banks if they fall below the
100% LCR during a period of financial stress?
a) 70%
b) 80% a) Report to shareholders only
c) 90% b) Report to the media
d) 100% c) Report to the Reserve Bank of India (RBI) with
reasons and corrective steps
Answer: d) 100% d) Report to the Basel
asel Committee on Banking
Supervision (BCBS)
25. From January 1, 2019, what is the minimum
ongoing basis requirement for the Liquidity
quidity Answer:: c) Report to the Reserve Bank of India
Coverage Ratio (LCR)? (RBI) with reasons and corrective steps
a) 70% 29. What type of shock is involved in the stress

b) 80% scenarios specified by the Basel Committee on
c) 90% Banking Supervision (BCBS)?
d) 100%
a) Bank-specific shock only
Answer: d) 100% b) Market-wide shock only
c) Combined idiosyncratic and market-wide
market
26. What is the purpose of banks striving to shock
achieve a higher LCR ratio than the minimum d) Regulatory shock only
prescribed?
Answer:: c) Combined idiosyncratic and market-
market
a) To reduce regulatory scrutiny wide shock
b) To meet market-wide shocks
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30. Which of the following is considered a factor Answer: b) As a potential

al source of liquidity risk
contributing to liquidity
iquidity risk through the
Liquidity Coverage Ratio (LCR)? 34. According to the Liquidity Coverage Ratio
(LCR) framework, what impact does an increase
a) An increase in market volatilities in market volatilities have on collateral?
b) Expansion of retail deposits
c) Higher credit rating by up to three notches a) Decreases collateral haircuts
d) Reduction in wholesale funding capacity b) Increases collateral haircuts
c) Has no impact on collateral
Answer: a) An increase in market volatilities
latilities d) Leads to the expansion of retail deposits
31. What is one of the specified contractual Answer:: b) Increases collateral haircuts
outflows that may arise due to a downgrade in
the bank's public credit rating according to the 35. What is the key characteristic of High-
High
Liquidity Coverage Ratio (LCR) framework? Quality Liquid Assets (HQLAs)?
a) Increase in unsecured wholesale funding a) They must have a high face value
capacity b) They can be illiquid in certain scenarios
b) Run-off of retail deposits c) They
ey should be unencumbered and readily
c) Collateral posting requirements convertible into cash
d) Reduction in market volatilities d) They are subject to legal, regulatory, and
operational impediments
Answer:: c) Collateral posting requirements
Answer:: c) They should be unencumbered and
32. What is a potential source of liquidity needs readily convertible into cash
identified in the Liquidity Coverage Ratio (LCR)
framework? 36. What is a requirement for assets to be
considered as high-quality
quality liquid assets?
a) Reduction in market volatilities
b) Scheduled draws on committed credit a) They must have a long maturity period
facilities b) They should be subject to legal impediments
c) Higher credit rating c) They should be readily convertible into cash
d) Increase in retail deposits with little or no loss of value
d) They should be complex financial instruments
Answer:: b) Scheduled draws on committed
credit facilities Answer:: c) They should be readily convertible
into cash with little or no loss of value
33. How does the Liquidity Coverage Ratio (LCR)
framework consider the run-off
off of retail
deposits?
a) As a factor reducing liquidity risk

b) As a potential source of liquidity risk
c) As an insignificant factor in liquidity risk
assessment
d) As a factor contributing to market volatilities
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37. What does the liquidity of an asset depend

on? Answer:: b) Low correlation with risky assets
a) The face value of the asset 41. What are the fundamental characteristics of
b) The volume to be monetized and the time assets more likely to generate funds without
frame considered incurring large discounts?
c) The credit rating of the asset
d) The complexity of the asset a) High credit and market risk
b) Low credit and market risk
Answer:: b) The volume to be monetized and c) High market concentration and complexity in
the time frame considered valuation
d) Low correlation with risky assets and ease of
38. Why is it essential for HQLAs to be valuation
unencumbered?
Answer:: b) Low credit and market risk
a) To increase their face value
b) To ensure they have a long maturity period 42. What market-related
related characteristic is
c) To prevent them from being readily mentioned as a factor for assets to be more
convertible into cash likely to generate funds without discounts
d) To remove legal, regulatory, or operational during stress?
impediments
a) High market concentration
Answer:: d) To remove legal, regulatory, or b) Low market concentration
operational impediments c) Presence of committed market makers
d) Flight from quality
39. What is the primary consideration for
determining the liquidity of an asset? Answer:: c) Presence of committed market
makers
a) The credit rating of the asset
b) The complexity of the asset 43. What are the two categories
ategories of assets
c) The underlying stress scenario, volume to be included in the stock of High-Quality
Quality Liquid
monetized, and the time frame considered Assets (HQLAs) based on their price-volatility?
price
d) The market value of the asset
a) Level A and Level B
Answer:: c) The underlying stress scenario, b) Level 1 and Level 2
volume to be monetized,
onetized, and the time frame c) Tier 1 and Tier 2
considered d) Class I and Class II
Answer: b) Level 1 and Level 2

40. What is a key characteristic of assets more
likely to generate funds without incurring large
discounts during fire-sales
sales or times of stress?
a) High market concentration

b) Low correlation with risky assets
c) Complexity in valuation
d) High credit risk
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44. What does

es Level 1 of assets in the stock of 48. What is the expected holding of a bank on
HQLAs include? the first day of the stress period, ideally?
a) Assets with high price-volatility a) More of Level 1 HQLA

b) Cash and near-cash
cash equivalents with no b) More of Level 2A HQLA
haircut applied c) More of Level 2B HQLA
c) Assets subject to large discounts during stress d) Equal distribution among Level 1, Level 2A,
d) Assets with low correlation with risky assets and Level 2B HQLA
Answer: b) Cash and near-cash

cash equivalents Answer: a) More of Level 1 HQLA
with no haircut applied
49. Which category of assets is expected to be
45. How are Level 2A assets characterized in more difficult to convert into cash on the first
terms of liquidity, and what haircut is applied day of the stress period?
for their conversion into cash?
a) Level 1 HQLA
a) Highly liquid, 50% haircut b) Level 2A HQLA
b) Less liquid, no haircut c) Level 2B HQLA
c) Less liquid, 15% haircut d) All categories have equal difficulty
d) Highly liquid, no haircut
Answer: c) Level 2B HQLA
Answer: c) Less liquid, 15% haircut
50. Under what conditions are banks permitted
46. What is the primary difference between to avail liquidity against securities under
Level 2A and Level 2B assets? FALLCR?
a) Level 2A assets have higher correlation with a) Anytime during normal market conditions
risky assets b) Only in times of stress as described by RBI
b) Level 2A assets are more difficult to convert guidelines and after utilizing all other HQLAs
into cash c) Only afterr the utilization of FALLCR
c) Level 2B assets have no haircut applied d) Without any conditions
d) Level 2B assets are less liquid and have a
higher haircut of 50% Answer:: b) Only in times of stress as described
by RBI guidelines and after utilizing all other
Answer:: d) Level 2B assets are less liquid and HQLAs
have a higher haircut of 50%
51. What is the maximum permissible tenor for
47. When are assets considered for inclusion in availing/rolling over the FALLCR facility?
each category (Level 1, Level 2A, Level 2B)?
a) 30 days
a) On the last day of the stress period b) 60 days
b) On the first day of the stress period c) 90 days
c) At the midpoint of the stress period d) 120 days
d) At any random day during the stress period
Answer: c) 90 days
Answer: b) On the first day of the stress
ress period
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52. How is the haircut applied for liquidity Answer:: b) Fixed at 2% above the prevailing LAF
against securities under FALLCR? repo rate
a) No haircut is applied 56. What is the maximum permissible period for

b) A fixed percentage haircut the Facility to Avail Liquidity for Liquidity
c) Haircut is applied based on the credit rating Coverage Ratio (FALLCR)?
of the security
d) Haircut as stipulated for Marginal Standing a) 30 days
Facility (MSF) b) 60 days
c) 90 days
Answer:: d) Haircut as stipulated for Marginal d) 120 days
Standing Facility (MSF)
Answer: c) 90 days
53. What declaration is required from banks
before availing the FALLCR facility? 57. In the computation
omputation of LCR, what are the two
factors that make up the ratio?
a) Declaration of profitability
b) Declaration of compliance with a) Stock of HQLA and Total Assets
environmental regulations b) Stock of HQLA and Net Cash Outflows
c) Declaration that all other HQLAs have been c) Stock of Liquid Assets and Total Liabilities
exhausted d) Stock of Cash and Total Deposits
d) Declaration of regulatory compliance
Answer: b) Stock of HQLA and Net Cash
Answer:: c) Declaration that all other HQLAs Outflows
have been exhausted
58. How is the interest rate on funds availed
54. What does LAF stand for in the context
ntext of under FALLCR determined?
the Facility to Avail Liquidity for Liquidity
Coverage Ratio (FALLCR)? a) Fixed at a rate determined by each individual
bank
a) Liquidity Analysis Factor b) Fixed at the prevailing LAF repo rate
b) Liquidity Adjustment Facility c) Fixed at 1% below the prevailing LAF repo
c) Liquidity Allocation Fund rate
d) Liquidity Assessment Framework d) Fixed at 200 basis
is points above the prevailing
LAF repo rate
Answer:: b) Liquidity Adjustment Facility
Answer:: d) Fixed at 200 basis points above the
55. Howw is the facility rate determined for funds prevailing LAF repo rate
availed under FALLCR?
a) Fixed at 1% above the prevailing LAF repo

rate
b) Fixed at 2% above the prevailing LAF repo
rate
c) Determined by the credit rating of the bank
d) Determined by the market conditions
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59. How many liquidity risk monitoring 63. How is the information
nformation related to the
tools/metrics are prescribed in addition to the Contractual Maturity Mismatch metric
two liquidity standards in the Basel III presented?
framework?
a) In terms of market risk
a) Three b) In a balance sheet format
b) Four c) In a liquidity risk report
c) Five d) In a profit and loss statement
d) Six
Answer:: c) In a liquidity risk report
Answer: c) Five
64. What does the Concentration
ncentration of Funding
60. What is the objective of the Contractual metric aim to identify?
Maturity Mismatch metric?
a) Diversification of funding sources
a) To maximize liquidity inflows b) The extent of maturity transformation
b) To identify gaps between contractual inflows c) Significant market risks
and outflows of liquidity d) Sources of funding that could trigger liquidity
c) To minimize contractual obligations problems
d) To measure market risk
Answer:: d) Sources of funding that could
coul
Answer: b) To identify gaps between trigger liquidity problems
contractual inflows and outflows of liquidity
65. What does the Concentration of Funding
61. How does the Contractual Maturity metric encourage?
Mismatch metric help in liquidity monitoring?
a) Increased reliance on maturity
a) By maximizing liquidity outflows transformation
b) By minimizing contractual obligations b) Diversification of funding sources
c) By indicating potential liquidity needs for c) Concentration of funding from significant
defined time bands counterparties
d) By avoiding monitoring of liquidity gaps d) Ignoring the Basel
asel Committee's Sound
Principles
Answer:: c) By indicating potential liquidity
needs for defined time bands Answer:: b) Diversification of funding sources
62. What does the contractuall maturity profile

assess in terms of liquidity?
a) Liquidity inflows only

b) Gaps between contractual inflows and
outflows
c) Contractual outflows only
d) Liquidity outflows only
Answer:: b) Gaps between contractual inflows

and outflows
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66. What is the objective of the Available b) To raise additional secure funding in
Unencumbered Assets metric? secondary markets and/or from central banks
c) To increase market concentration
a) To assess market risk d) To minimize currency mismatches
b) To monitor funding concentration
c) To provide supervisors with data on available Answer:: b) To raise additional secure funding in
unencumbered assets secondary markets and/or from central banks
d) To encourage maturity transformation
70. Why is the LCR in each significant currency
Answer:: c) To provide supervisors with data on monitored?
available unencumbered assets
a) To minimize market-related
related risks
67. How does the Concentration of Funding b) To better capture potential currency
metric address funding concentration in banks? mismatches
c) To encourage currency
urrency concentration
a) By promoting
romoting concentration of funding from d) To ensure compliance with sound principles
significant counterparties
b) By monitoring funding from each insignificant Answer:: b) To better capture potential currency
counterparty mismatches
c) By encouraging diversification of funding
sources 71. What does LCR stand for in the context of
d) By minimizing the reporting of funding LCR by Significant Currency?
concentrations
a) Liquidity Coverage Rate
Answer: c) By encouraging
couraging diversification of b) Liquidity Control Regulation
funding sources c) Liquidity Capture Ratio
d) Liquidity Coverage Ratio
68. What insight does the Concentration of
Funding metric provide into a bank's funding? Answer:: d) Liquidity Coverage Ratio
a) The quantity and key characteristics of 72. What is the focus of Market-related
Market
unencumbered assets Monitoring Tools?
b) The extent of maturity transformation
c) The concentration
tion of funding from significant a) Monitoring bank profits
counterparties, products, and currencies b) Monitoring significant currency fluctuations
d) The available liquidity for the next 30 c) High-frequency market
arket data as early warning
calendar days indicators for potential liquidity difficulties
d) Ensuring compliance with accounting
Answer:: c) The concentration of funding from standards
significant counterparties, products, and
currencies Answer: c) High-frequency
frequency market data as early
warning indicators for potential liquidity
69. What is the potentiall use of assets in the difficulties
context of LCR by Significant Currency?
a) To meet operational expenses

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73. What is the potential

al role of assets in LCR by
Significant Currency? a) Quarterly
b) Monthly
a) To minimize potential currency mismatches c) Annually
b) To serve as early warning indicators d) Semi-annually
c) To be used as collateral in secondary markets
d) To ensure sound principles in currency Answer: b) Monthly
management
78. Within what time period is the Statement on
Answer: c) To be used as collateral in secondary Other Information on Liquidity (BLR
(BLR-5) required
markets to be reported?
74. How frequently is the Basel III Liquidity a) Within a month

Return BLR-1,
1, "Statement on Liquidity Coverage b) Within 45 days
Ratio (LCR)," required to be submitted? c) Within 15 days
d) Within 90 days
a) Quarterly
b) Annually Answer: a) Within a month
c) Monthly
d) Semi-annually 79. When are banks initially required
equired to disclose
information on their Liquidity Coverage Ratio
Answer: c) Monthly (LCR) in their annual financial statements?
75. What
hat is the time period within which the a) Starting from the financial year ending March
Statement of Funding Concentration (BLR
(BLR-2) 31, 2015
must be reported? b) Starting from the financial year ending March
31, 2016
a) Within a week c) Starting from the financiall year ending March
b) Within a month 31, 2017
c) Within 15 days d) Starting from the financial year ending March
d) Within 45 days 31, 2018
Answer: c) Within 15 days Answer:: a) Starting from the financial year

ending March 31, 2015
76. Which Basel III Liquidity Return is associated
with
h the Statement of Available Unencumbered 80. In the initial year of LCR disclosure, for which
Assets? quarter should the LCR-related
related information be
furnished?
a) BLR-1
b) BLR-2 a) Quarter ending June 30, 2015
c) BLR-3 b) Quarter ending September 30, 2015
d) BLR-4 c) Quarter ending December 31, 2015
d) Quarter ending March 31, 2015
Answer: c) BLR-3
Answer:: d) Quarter ending March 31, 2015
77. What is the frequency of submission for the
LCR by Significant Currency (BLR-4)?
144
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81. In subsequent annual financial statements, d) To increase the probability of erosion of a

what quarters should
ould the LCR disclosures cover? bank's liquidity position
a) Only the quarter ending March 31 of the Answer:: c) To ensure a stable funding profile in
relevant financial year relation to assets and off-balance
balance sheet
b) All four quarters of the relevant financial year activities
c) Only the last two quarters of the relevant
financial year 85. How does a sustainable funding structure, as
d) Only the first two quarters of the relev
relevant intended by the NSFR, impact a bank's liquidity
financial year position?
Answer:: b) All four quarters of the relevant a) It increases the risk of failure
financial year b) It reduces the probability of erosion of a
bank's liquidity position
82. What is the objective of the Net Stable c) It encourages broader systemic stress
stre
Funding Ratio (NSFR)? d) It promotes overreliance on short-term
short
funding
a) To promote short-term
term structure funding
b) To promote medium-to-long-termterm structure Answer:: b) It reduces the probability of erosion
funding of a bank's liquidity position
c) To encourage asset concentration
d) To minimize disclosures in financial 86. What does the NSFR limit to promote better
statements assessment of funding risk?
Answer: b) To promote medium-to-long

long-term a) Overreliance on short-term
term wholesale
structure funding funding
b) Funding instability
83. When did the Basel Committee on Banking c) Funding concentration
Supervision (BCBS) aim to trial the Net Stable d) Funding risk across all on-and
and-off-balance-
Funding Ratio (NSFR) before making it sheet items
mandatory?
Answer:: d) Funding risk across all on
on-and-off-
a) 2010 balance-sheet items
b) 2012
c) 2015 87. What does the NSFR propose to be
d) 2018 applicable to banks in India from?
Answer: b) 2012 a) January 1, 2015

b) January 1, 2016
84. What is the primary objective of the Net c) January 1, 2017
Stable Funding Ratio (NSFR)? d) January 1, 2018
a) To encourage overreliance on short

short-term Answer: d) January 1, 2018
wholesale funding
b) To promote funding instability
c) To ensure a stable funding profile in relation
to assets and off-balance
balance sheet activities
145
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88. How does the NSFR contribute to reducing c) NSFR = 0%

the risk of a bank's failure? d) NSFR < 100%
a) By encouraging overreliance on short

short-term Answer: b) NSFR > 100%
funding
b) By promoting funding instability 92. What does RSF stand for in the calculation of
c) By limiting reliance on short-term
term wholesale the Net Stable Funding Ratio (NSFR)?
funding
d) By increasing the probability of erosion of a) Required Short-Term
Term Funding
liquidity b) Reserve Stability Factor
c) Remaining Short-Term
Term Funds
Answer:: c) By limiting reliance on short
short-term d) Reliable Stability Factor
wholesale funding
Answer: a) Required Short-Term
Term Funding
89. What does ASF stand for in the calculation
of the Net Stable
le Funding Ratio (NSFR)? 93. How is the result of the NSFR expressed?
a) Annual Stability Factor a) In currency units

b) Available Short-Term Funding b) As a percentage
c) Available Stable Funding c) In decimal form
d) Asset Stability Factor d) In fractions
Answer: c) Available Stable Funding Answer: b) As a percentage
90. How is the Net Stable Funding Ratio (NSFR)

calculated using the formula NSFR
FR = ASF / RSF x
100?
a) By dividing Available Short-Term

Term Funding by
Required Short-Term
Term Funding and multiplying
by 100
b) By dividing Available Stable Funding by
Required Stable Funding and multiplying by 100
c) By subtracting Required Stable Funding fro
from
Available Stable Funding and multiplying by 100
d) By adding Available Stable Funding and
Required Stable Funding and dividing by 100
Answer:: b) By dividing Available Stable Funding

by Required Stable Funding and multiplying by
100
91. What is the condition

dition for a satisfactory
NSFR?
a) NSFR = 50%
b) NSFR > 100%

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1

APP NAME: CAIIB WITH ASHOK, WWW.CAIIBWITHASHOK.IN

ALL THE VERY BEST FOR YOUR

SAMPLE QUESTION S FOR

BANK FINANCIAL MANAGEMENT

Ashok Pandey ( Senior Manager)

S No. Topic Page No

CAIIB GENERAL INFORMATION

S NO. Mandatory Paper Elective Papers: Candidates may select

2 Advanced Business & Risk Management

3 Banking Regulations and Information Technology & Digital Banking

4 Bank Financial Management Central Banking

 There will be 100 objective

 Negative points won't be awarded for incorrect responses.

 Exam Question s will include the following:

c. Logical and analytical explanation

 50 out of 100 is the minimum score required to pass the subject.

 The "Class of Pass" requirements:

 Deadline for Guidelines and Significant Developments Ahead of Exams:

 Important developments in banking and finance up to June 30th, as well as

Even though those topics may not have been explicitl

MODULE B: RISK MANAGEMENT

 Risks in Banking Business

 Risk Regulations in Banking Industry

through Loan Review Mechanism (LRM); Credit Risk Mitigation; Securitisation;

 Operational Risk and Integrated Risk Management

 Liquidity Risk Management

 Basel II Framework on Liquidity Standards

CHAPTER 11-: RISK AND BASIC RISK MANAGEMENT FRAMEWORK

Answer: d) All of the above Answer: c) Smooth traffic flow

5) What is the primary reason for the deviation

13) What is the focus of Financial Risks? d) Net cash flow

Answer:: c) By the net result of all cash inflows and

Answer: d) Both b and c

Answer:: b) Higher variability in net cash flow with

37) What does zero-risk

a) It is guaranteed to be high Answer:: b) Wide variations in net cash flow

Answer:: c) Return is directly proportional to risk and Answer: b) 60

b) 50000 Rs. Answer: b) 12%

a) Return is unrelated to risks

b) Return is inversely proportional to risks

Answer: c) Returns net of risk

66) What is the potential consequence for a Answer:: b) To minimize uncertainties

73) What is factored into pricing? Answer: c) Top management

a) It results in overpricing 79) According to modern best practices, what is the

a) Frontline employees 81) What is the initial step in the management of

a) Risk acceptance Answer:: b) Organization for Risk Management

Answer: b) Risk mitigation a) Risk Identification

a) Oriented towards profit maximization

Answer: b) Board level Sub-Committee

Answer:: c) Deciding on business strategy a) Only at the transaction level

100) What does risk identification consist of? a) Credit risk

a) Ignoring risks at the transaction level b) Funding risk

103) What is the rate of interest on the deposit in a) Credit risk

104) What would arise if BPLR is reduced during the

d) Due to the need to deploy repayment pr

Answer:: d) Due to the need to deploy repayment 114) What do quantitative

Answer:: b) Earnings, market value, and losses due to

118) What is an example of a sensitivity--based a) Impact of market conditions

119) How is sensitivity defined in relation to market a) It provides a comprehensive analysis

Answer:: b) Capturing only those market parameters

124) What limitation does the passage highlight