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| Section | Objectives |
|---|---|
| Topic 1: Operational Risk Fundamentals | - Definition and scope of operational risk - Operational risk within enterprise risk management - Risk taxonomy and loss event types |
| Topic 2: Measurement and Quantification | - Key risk indicators (KRIs) - Loss distribution approaches |
| Topic 3: Mitigation and Control | - Internal controls and control testing - Risk transfer mechanisms including insurance |
| Topic 4: Regulatory and Industry Standards | - Regulatory expectations for operational risk management - Basel operational risk frameworks |
| Topic 5: Risk Identification and Assessment | - Risk and control self-assessment (RCSA) - Scenario analysis and risk mapping |
| Topic 6: Risk Governance and Frameworks | - Three lines of defense model - Risk governance structures and accountability |
Question 1
Which of the following are valid criticisms of value at risk:
I. There are many risks that a VaR framework cannot model
II. VaR does not considerliquidity risk
III. VaR does not account for historical market movements
IV. VaR does not consider the risk of contagion
A. I and III
B. I, II and IV
C. All of the above
D. II and IV
Question 2
Which of the following is not a limitation of the univariate Gaussian model to capture the codependence structure between risk factros used for VaR calculations?
A. It cannot capture linear relationships between risk factors.
B. A single covariance matrix is insufficient to describe the fine codependence structure among risk factors as non-linear dependencies or tail correlations are not captured.
C. Determining the covariance matrix becomes an extremely difficult task as the number of risk factors increases.
D. The univariate Gaussian model fails to fit to the empirical distributions of risk factors, notably their fat tails and skewness.
Question 3
The cumulative probability of default for a security for 4 years is 11.47%. The marginal probability of default for the security for year 5 is 5% during year 5. What is the cumulative probability of default for the security for 5 years?
A. 15.90%
B. 16.47%
C. None of the above
D. 5.00%
Question 4
A zero coupon corporate bond maturing in an year has a probability of default of 5% and yields 12%. The recovery rate is zero. What is the risk free rate?
A. 7.00%
B. 6.40%
C. 5.26%
D. 5.00%
Question 5
When compared to a low severity high frequency risk, the operational risk capital requirement for a medium severity medium frequency risk is likely to be:
A. Higher
B. Zero
C. Lower
D. Unaffected by differences in frequency or severity
Solutions:
| Question 1 Answer: B | Question 2 Answer: A | Question 3 Answer: A | Question 4 Answer: B | Question 5 Answer: A |
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