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BFM-b risk management BY Neeraj Agnihotri

1) Which of following documents does not contains Zero risk.

a) Investments in shares

b)

Investment in bonds and debenturesc)

Investment in term deposit

d)

Investment in government bonds

e)

Non of these

Ans:a

2. if daily volatility of a stock is 2.5% what will be fourthnightly

volatility.

a) 9.675

b) 37.5c) 6

d) .166

e) 13.69

ans: a

3. Risk can be mitigate through..

a) Crystilization

b) Diversification

c) Portfolio risk

d) b & c

ans : d (bfm-179)

4. calculate standard deviation of business b

Cash flow 01 yr 02 yr 03 yr 04 yr 05 yr

Business b 3 8 1 6 4

a) 22

b) 4.40

c) 2.70

d) .61

Ans : b formula root of total (x-Xmean) square by n-i

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5. The risk arises due to crystallization of contingent liabilities.

a) funding risk

b) time risk

c) call risk

d) gap or mismatch risk

e) basis risk

ans: c

a) funding risk- due unexpected outflow of fund

b) time risk -non receipt of excepted in flows

d) gap or mismatch risk-holding assets & liabilities, off the bal sheet items

with different principal,maturity or repricing dates.

e) basis risk-interest rate of different assets,liabilities & off the bal sheet

items may change in different magnitude

6. In a floating interest scenario, bank may price their assets and

liabilities based on different benchkmarks, pick up the odd one

a) Treasury bills yield

b) fixed deposit rates

c) call money rates

d) forward rates

e) MIBORans: d (BFM_page 189)

7. Yields curve risk is the aries with respect to different maturity sectors,

is a type of a

a) Liquidity risk

b) Interest rate risk

c) Basis risk

d) market riske) deafault or credit risk

ans: c

8. Risk weighted assets for credit of a bank is basically a five stage process ,

which one is the third stage.

a)Determining Adjusted Exposure

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b) determining applicable risk weight

c) determining RWA for the exposure

d) determining allowable reduction

e) consolidation of RWAs of all exposures

ans:b

a)Determining Adjusted Exposure-I

b) determining applicable risk weight-III

c) determining RWA for the exposure-iv

d) determining allowable reduction-ii

e) consolidation of RWAs of all exposures-V

9. Market value of a portfolio varies with stress testing techniques. Stress

testing covers many different techniques, find out which one specifies the shocks

that might plausibly affect a number of market risk factor simultaneously if an

extreme, but possible, event occurs.

a) simple sensitivity test

b) scenario analysis

c) Maximum loss

d) extreme value theory

ans : b

10. credit events are ISDA defined credit event and includes events .

Pick up odd one

a) Bankruptcy

b)

Obligation acceleration

c)

Obligation default

d)

Non performing assets

e)

Failure to pay

f)

Repudiation/moratoriumg)

Restructuring

Ans: d (BFM-176)

11. PillarII Supervisory Review consists of

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A) Evaluate Risk Assessment

B) Ensure Soundness and Integrity of Banks internal

process to assess the Capital Adequacy

C) Ensure maintenance of maximum capital with

PCA for shortfall

D) Prescribe differential Capital, where necessary i.e.

where the internal process are slack.

E) All of these.

Ans: c not maximum it is minimum

12. PillarIII Market Disciplineconsists of except

one.

A) Enhance disclosures

B) Core disclosures and Supplementary disclosures

C)Review Market ups and down

d)Timely at least semi annual disclosures.

Ans: c

13. Which capital is call supplementary capitl.

a) Tier-i

b) tier-iic) tieir-iii

d) non of these

rt ans is b, tier -I is core capital

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14. Standardized Approach allows banks to measure Credit Risk

in a Standardized manner based on

a) Internal Rating Based (IRB)

b) Export Credit Agency (ECA)

c) Risk Weighted Assets

d) External Credit Assessment.

Ans: d

a)IRB approachto measurement of capital requirement for

credit risk,

b)For the purpose of Credit Rating of Sovereigns, the Countryscores of Export Credit Agency (ECA) may be recognized.

c)Risk Weighted Assets are derived from capital charge

computation.

15. The criteria required for Credit Assessment by External

Credit Assessment Institutions (ECAI) are all except one..

A) Objectivity

B) Independence

C) International Access

D) Discipline

E) Transparency

F) Disclosure

G) Resources

H) Credibility.

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Ans:D

16. Under Standard Approach retail and SME exposures attract

a uniform Risk weightage of .

a) 50%

b)75%.

c) 80%

d) 85%

e) 100%

ans: b

17. On the basis of the risk weightage pick up the odd one.

a)Under Standard Approach retail and SME exposures attract auniform Risk weightage of ..75%

b) exposure to sovereign were assigned a Risk Weight of 0%,

claims against Banks 20% and advances to corporates, risk

weights under basel-I accort.

c)) Lending fully secured by mortgage on residential property

will have a Risk Weightage of 35%.

d) The Loans secured by commercial property will have 100%

Risk Weightage.e) all correct

rt ans : e

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19. Which statement is not correct about IRB approach

a)IRB approachto measurement of capital requirement for

credit risk,

b)

IRB Approach the banks internal assessment of key riskparameters serves as a primary input to capital

computation.

c)

IRB Approach computes the capital requirement of

each exposure directly.

d)

IRB Approaches depend upon four parameters viz,

PD, LGD, EAD and effective management

e)

Under IRB Approach Banks needcategoriesas: A)Corporates B) Sovereigns C) Banks D)

Retail E) Equity.

f) Internal Rating Based (IRB) Approach has further two

options Foundation Approach and Advanced IRB

Approach.

g)

All correct.

Ans: g allcorrect

20. The Market Risk positions that require Capital Charge

are

A) Interest rate related Instruments in Trading Book

B) Equities in Trading Book

C) Foreign Exchange open positions through out the Bank.

d) a & c

e) All of these

ans: e

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21. Under Standardized Approach Banks activities

are divided into eight business lines. They are pick up odd

one.

1) Corporate Finance2) Trading & Sales 3) Payments& settlements 4) Commercial Banking 5) Agency services

6) corporate banking 7) Retail Brokerage and 8)

Assessment Management.

Ans: 6 rt option is retail banking

22. Credit Risk includes ..

A) Stress tests under IRB Approach

B) Definition of default

C) Residual Risk

D) Credit concentration Risk.

e) all of these

ans: e

23. The disclosures does not describe.

a)PillarIII should be made at least on semiannual

basis subject to some exceptions.

b). Qualitative disclosures such as policies, systems

definitions may be made on annual basis.

c). Critical information such as TierI capital, capital

ratios and other components may be published on a

quarterly basis.

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d). Banks should have a formal disclosure policy

approved by RBI.

e). PillarIII prescribes qualitative and quantitative

disclosure under 13 areas.

Ans: d -- policy approaved by board of directors

24. Zero risk is not having which of the following features

a) There will be no variation in net cash flow

b) Return on investment would be higher

c) low return on investment

d) all of these

ans :b

25. From the operational risk management point of view banking

business lines have been grouped in how many major heads .

a) 4b) 8

c) 5

d) 2

ans: 8

26. When return on business is worked out by netting the risk in business

it is called.

a) return on investment

b) risk netted return on equityc) risk adjusted return on investment

d) risk based system

ans: c

27. Banking books does not include which of the following.

a) all deposit and loans

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b) all borrowings

c) capital

d) all of these

e) non of these

ans: c

28. where banks have more earnings assets than paying liabilities which

type of risk arises.

a) liquidity

b) operational

c) Interest rate

d) market

ans: c

29. Trading book includes ..

a) all assets

b) All liabilities

c) All marketable assets

d) All long term liabilities

ans : c

30 which of the following derivatives are the off the bal sheet

exposurea) Swaps b) futures c) forward contracts d) options

A ) a to d

B) ab& d

C) c only

D) a & c only

Ans : A

31. which of the following is the liquidity risk.

a) time riskb) call risk

c) price risk

d) funding risk

ans: c

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32. Premature payment of a term loan will result which type of

following risk

a) Yield cureve risk

b) Embedded option curev risk

c) mismatch risk

d) basis risk

ans: b

33. portfolio risk is called the risk at

a) branch level

b) Regional/Zonal level

c) aggregated level

d) Non of these

ans; c

34.In risk measurement the parameter that is used to capture

deviation of a target variable due to unit movement of a single market

parameter say 1% change in interest rate is called.

a) Downside potential

b) Volatility

c) Sensitivity

d) mitigationAns: c

I

35. which was the immediate cause which prompted G-10 countries

to from the basel committee on th banking supervisions.

a) Dergulation

b) Competition

c) Herstatt incident

d) Globlizationans; c

36 who has the overall responsibilities for management of risks.

a)

Risk management committee

b)

Assets liability management committee

c)

Board of officerd

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d)

RBI

Ans: c

37. Approaved market risk limits for factor sensitivities and value

at risk are duly set by which authority

a) Risk policy committee

b) Bpoard of directors

c) ALCO

d) Board of officers

e) IMF

ans: a