MODULE B RISK MANAGEMENT

1). Returns net of risks in the business are called: risk adjusted rate of return
2). the advances and deposits arising from commercial banking and retail banking are classified under:
banking book
3). Uncertainties associated with risk elements impact the net cash flow of any business or investment.
Under the impact of uncertainties, variations in net cash flow take place. This could be favorable as well
as unfavorable. The possible unfavorable impact is the risk of the business.
4). Lower risk implies lower variability in net cash flow with lower upside and downside potential. Higher
risk would imply higher upside and downside potential.
5). Zero risk would imply no variation in net cash flow. Return on zero risk investment would be low as
compared to other opportunities available in the market.
6). the key driver in managing a business is seeking enhancement in risk adjusted return on capital
(RAROC). Higher the RAROC, higher is the reward to investors / shareholders and more preferable such
investment would be to the market.
7). the banking book is not exposed to market risk.
8). the risk arising due to failure of system and procedure, internal or external is called: operational risk
9). under which approach unexpected losses are adjusted against capital is captured: ROE
10). the time risk is not a sub category of interest rate risk.
11). some risks in banking business are managed at transaction level and aggregate level; whereas few
risks are managed at aggregate level only. Which risk is managed at aggregate level only: liquidity risk?
12). Quantitative measurement of risk based on sensitivity is defined as: change in target variable due to
unit change in single market parameter
13). If daily volatility of a stock is 1.10%, the monthly volatility is: (square root of 30 = 5.50) 6.05
14). the most comprehensive quantitative risk measurement method is: value at risk
15). the process of reducing or eliminating the uncertainties associated with risk elements is called: risk
mitigation
16). Higher the risk higher would be premium.
17). Higher the risk in a business, higher would be capital requirement.
18). Sensitivity analysis captures deviation of a target variable due to unit movement of a single market
parameter.
19). From the risk management point of view, banking business lines may be grouped broadly under the
banking book, the trading portfolio and off balance sheet exposures.
20). the banking book includes all advances, deposits and borrowings, which usually arise from
commercial and retail banking operations. All assets and liabilities in banking book are normally held
until maturity and accrual system of accounting is applied.
21). the exchanges such as stock exchanges, commodity exchange are useful in mitigating the following
types of risk: counter party risk
22). A bank has policy to charge 2% penalty for prepayment of housing loans. The bank is trying to cover
the following risk: embedded option risk
23). Banks take property mortgage as security & mitigate the credit risk.
24). Risk of failure of entire banking system is called: systemic risk.
25). Bank for international settlements is head quartered in Luxembourg.