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Bfm Quiz Module b
Bfm Quiz Module b
Bfm Quiz Module b
CAIIB
(BFM)
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INDEX
1 General Information 3
2 Syllabus 6
3 Important Question 8
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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:
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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a. Knowledge evaluation
b. Knowledge of concepts
d. Solving problems
e. Examining case
Passing Requirements:
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.
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.
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.
➤ 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.
o Foreign What is Risk?, Linkages among Risk, Capital and Return; Why Risk
Management?; Basic Risk Management Framework
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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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
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
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
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
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
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%
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
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
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) 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
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
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
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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Answer: c) 6%
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
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
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?
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?
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
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:: 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
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
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
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)
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?
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?
183) What should the board of directors regularly the cash inflow associated with the trading business
verify? on the "Today" scenario?
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
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) 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%
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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Answer: b) Variations
riations in cash flows of individual
businesses offset each other
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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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?
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
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
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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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
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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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
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
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%
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?
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?
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
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
Answer: c) Short-term
term subordinated debt
subject to a lock-in
in clause (Tier 3 capital)
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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
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?
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?
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
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)
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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
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?
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?
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
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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?
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)?
92) What did the December 2010 versions 95) What iss the countercyclical capital
of Basel II set out? buffer designed to achieve?
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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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?
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?
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?
a) 2 years
b) 5 years
c) 8 years
d) 10 years
Answer: b) 5 years
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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:: c) Impact of the corona virus Answer:: b) The remaining risk after natural
pandemic risks are reduced
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?
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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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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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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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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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?
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?
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?
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
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?
72) What is the primary responsibility of the 76) What is the primary responsibility of the
Asset-Liability
Liability Management Committee Asset-Liability
Liability Management Committee
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
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) 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?
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?
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?
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?
121) What should senior management 125) How is risk mitigation achieved in
reports reasonably be in terms of accuracy? market risk?
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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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
A) 1%
B) 2%
C) 3%
D) 4%
Answer: C) 3%
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
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
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
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
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:: 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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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
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
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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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)
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
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
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
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
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
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
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
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
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:: 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
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
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
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:: b) The behavior pattern does not Answer:: d) It does not follow a statistically
follow a statistically normal distribution normal distribution
114
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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
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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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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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
a) To maximize profits
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:: 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
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
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
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
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
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
Liability Management Committee
(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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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
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?
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
73. What should a bank define and identify d) To facilitate the process of measuring and
concerning liquidity risk? mitigating liquidity risk
a) Stock approach
b) Intrinsic liquidity profile
c) Cash flow mismatches over a series of
specified time periods
d) Benchmark ratios
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
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
a) 15 calendar days
b) 30 calendar days
c) 60 calendar days
d) 90 calendar days
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
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
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) 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
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
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
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?
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
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?
a) NSFR = 50%
b) NSFR > 100%