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CISI-Managing Operational Risk in Financial Institutions
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Question 1 of 10
1. Question
The FCA expects firms to have done the following with regard to EAD estimates using their own estimates:
Correct
Highlighted an understanding of the economic cycle’s impact on exposure prices and was able to use that information in deriving downward EAD forecasts.
Incorrect
Highlighted an understanding of the economic cycle’s impact on exposure prices and was able to use that information in deriving downward EAD forecasts.
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Question 2 of 10
2. Question
The FCA believes that an IPRE rating system will only be effective if a company is able to demonstrate the following in support of its treatment of interest-rate risk (IRR):
Correct
The FCA assumes an IPRE rating system can only be successful by intuitively using IRR in the contract based on product theory.
Incorrect
The FCA assumes an IPRE rating system can only be successful by intuitively using IRR in the contract based on product theory.
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Question 3 of 10
3. Question
Exposures include not only significant lent quantities under facilities but also accrued interest, which will fluctuate between payment days. The FCA wants companies to take the following measures to ensure a proper range of interest:
Correct
The calculation of changes in the accrued interest must take into account adjustments in the negotiated interest rate over the pre-default time period and in a manner consistent with the scenario foreseen in the weighted average downturn / default forecast.
Incorrect
The calculation of changes in the accrued interest must take into account adjustments in the negotiated interest rate over the pre-default time period and in a manner consistent with the scenario foreseen in the weighted average downturn / default forecast.
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Question 4 of 10
4. Question
The FCA wants a client to have a validation process, which will include:
Correct
Impartiality, consistency, reliability and conservativeness criteria designed to satisfy the ranking systems and processes that determine whether their rating systems reach those requirements.
Incorrect
Impartiality, consistency, reliability and conservativeness criteria designed to satisfy the ranking systems and processes that determine whether their rating systems reach those requirements.
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Question 5 of 10
5. Question
The FCA considers an IPRE rating system to be effective only if a company is able to show the following about its cash flow management (except where the business should demonstrate that this is not an acceptable risk driver):
Correct
It is well known and useful to obtain and/or distribute parameter values and their effect on deal scores, and the impact on the offer ranking is consistent with factors such as design style, geographic location and building condition.
Incorrect
It is well known and useful to obtain and/or distribute parameter values and their effect on deal scores, and the impact on the offer ranking is consistent with factors such as design style, geographic location and building condition.
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Question 6 of 10
6. Question
The FCA considers an IPRE rating system to be effective only if an organization may show the following with respect to its refinancing risk treatment:
Correct
The interest rate calculation only and the depreciation in the final year functions accordingly, and the scale of the difference between both scores is intuitive.
Incorrect
TheThe interest rate calculation only and the depreciation in the final year functions accordingly, and the scale of the difference between both scores is intuitive.
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Question 7 of 10
7. Question
Where the rating system is categorized as a low default portfolio in accordance with the criteria in this segment, a company should be able to show that the structure implemented sufficiently takes into account:
Correct
A business should be able to demonstrate that, over time, the system adopted takes ample account of the economic climate used for the data and adjustments in portfolio composition.
Incorrect
A business should be able to demonstrate that, over time, the system adopted takes ample account of the economic climate used for the data and adjustments in portfolio composition.
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Question 8 of 10
8. Question
The FCA requires a corporation to meet with the validity criteria only where, with regard to discriminatory control, it can show that:
Correct
Fair minimum requirements to be met by the rating system are defined in accordance with the reasons behind the implementation of these criteria, and the factors that are clearly identified when determining the benchmarks.
Incorrect
Fair minimum requirements to be met by the rating system are defined in accordance with the reasons behind the implementation of these criteria, and the factors that are clearly identified when determining the benchmarks.
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Question 9 of 10
9. Question
In one of the following cases, a securitisation originator is required to use the securitisation probability weights (and not to measure own funds criteria for the reserves underlying the securitisation). Pick the right one.
Correct
A mortgage lending original owner is allowed to use the weights of likelihood of securitisation when the company passes a significant credit risk associated with securitised exposures to third parties.
Incorrect
A mortgage lending original owner is allowed to use the weights of likelihood of securitisation when the company passes a significant credit risk associated with securitised exposures to third parties.
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Question 10 of 10
10. Question
The FCA plans to allow the originator to render its own determination of a substantial transition of risk only where it is confident that:
Correct
The lowering of the criteria for own funds achieved in each particular case can be clarified by a proportionate transfer of danger to third parties.
Incorrect
The lowering of the criteria for own funds achieved in each particular case can be clarified by a proportionate transfer of danger to third parties.