Quiz-summary
0 of 10 questions completed
Questions:
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
Information
CISI – Managing Operational Risk in Financial Institutions – Joshua – Quiz 4
You have already completed the quiz before. Hence you can not start it again.
Quiz is loading...
You must sign in or sign up to start the quiz.
You have to finish following quiz, to start this quiz:
Results
0 of 10 questions answered correctly
Your time:
Time has elapsed
You have reached 0 of 0 points, (0)
Categories
- Not categorized 0%
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
- Answered
- Review
-
Question 1 of 10
1. Question
Asset & Liability Management is a generic term that is used to refer to a number of things by different market participants. What is the principal objective of the Asset & Liability Management function?
Correct
ALM is a generic term that is used to refer to a number of things by different market participants. The principal objective of the ALM function is to manage interest-rate risk and liquidity risk. It also sets overall policy for credit risk and credit risk management, although tactical-level credit policy is set at a lower level within credit committees. Although the basic tenets of ALM would seem to apply more to commercial banking, rather than investment banking, in reality, it is important that it is applied to both functions.
Incorrect
ALM is a generic term that is used to refer to a number of things by different market participants. The principal objective of the ALM function is to manage interest-rate risk and liquidity risk. It also sets overall policy for credit risk and credit risk management, although tactical-level credit policy is set at a lower level within credit committees. Although the basic tenets of ALM would seem to apply more to commercial banking, rather than investment banking, in reality, it is important that it is applied to both functions.
-
Question 2 of 10
2. Question
Which one of the following statements defines Credit risk?
Correct
Credit Risk: Arises from the possibility of inability or unwillingness of the borrower
or the third party to fulfil his obligations in a timely manner to the bank, which led to cause economic losses for the bank, there are many factors lead to credit risk and occurrence of obstacles, either from an external factors related to economic conditions or factors related to the bank (such as the lack of good management for the customer query or not following up a loan), or a customer-specific factors (such as lack of good management for his project or the use of the loan in the allotted purpose).Incorrect
Credit Risk: Arises from the possibility of inability or unwillingness of the borrower
or the third party to fulfil his obligations in a timely manner to the bank, which led to cause economic losses for the bank, there are many factors lead to credit risk and occurrence of obstacles, either from an external factors related to economic conditions or factors related to the bank (such as the lack of good management for the customer query or not following up a loan), or a customer-specific factors (such as lack of good management for his project or the use of the loan in the allotted purpose). -
Question 3 of 10
3. Question
The purpose of the credit risk measurement is the quantification of potential losses from credit operation. The amount of losses is never known with certainty therefore it is necessary to estimate it. What are the two basic approaches to define credit losses and thus to quantify the credit risk?
Correct
It is necessary to measure credit risk. The purpose of the credit risk measurement is the quantification of potential losses from credit operation. The amount of losses is never known with certainty therefore it is necessary to estimate it. There are two basic approaches to define credit losses and thus to quantify the credit risk.
The methods based on the absolute position in Credit risk
This approach is also known as “default-mode”. Each borrower may be found at the end of the risk horizon in only two states – default or success. Credit risk then arises from the default of the debtor.
The methods based on the expected rate of default on credit claims
This approach is also known as “market-to-market”. The debtor may be located in any from n-located rating grades including the failure at the end of the risk horizon. In this approach, the credit risk arises from the debtor transition to a lower rating grade.Incorrect
It is necessary to measure credit risk. The purpose of the credit risk measurement is the quantification of potential losses from credit operation. The amount of losses is never known with certainty therefore it is necessary to estimate it. There are two basic approaches to define credit losses and thus to quantify the credit risk.
The methods based on the absolute position in Credit risk
This approach is also known as “default-mode”. Each borrower may be found at the end of the risk horizon in only two states – default or success. Credit risk then arises from the default of the debtor.
The methods based on the expected rate of default on credit claims
This approach is also known as “market-to-market”. The debtor may be located in any from n-located rating grades including the failure at the end of the risk horizon. In this approach, the credit risk arises from the debtor transition to a lower rating grade. -
Question 4 of 10
4. Question
Banks provide funding limits for each client based on the creditworthiness of the client. These limits are calculated based on the following except?
Correct
Banks provide funding limits for each client based on the creditworthiness of the client. These limits are calculated based on
(i)rating of the client
(ii)turnovers on his account
(iii)assessment of the financial situation of the client.
The funding limits the expression of risk exposure to an individual client. These limits are determined by the current situation of the client, market, industry, position in relation to competitors, etc. The overall client limit is usually broken down into individual limits for specific products according to these risky products. Among the forms of limiting risks include: receiving the collateral, guarantee, protection insurance, a lien on the assets or restrictions limits.Incorrect
Banks provide funding limits for each client based on the creditworthiness of the client. These limits are calculated based on
(i)rating of the client
(ii)turnovers on his account
(iii)assessment of the financial situation of the client.
The funding limits the expression of risk exposure to an individual client. These limits are determined by the current situation of the client, market, industry, position in relation to competitors, etc. The overall client limit is usually broken down into individual limits for specific products according to these risky products. Among the forms of limiting risks include: receiving the collateral, guarantee, protection insurance, a lien on the assets or restrictions limits. -
Question 5 of 10
5. Question
Monitoring tasks are primarily performed by the divisional credit risk units in close cooperation with the business which acts as the first line of defence, dedicated rating analysis teams and portfolio management function. What are the two levels Credit risk monitoring can be divided into? (Select all that applies)
Correct
Monitoring tasks are primarily performed by the divisional credit risk units in close cooperation with the business which acts as the first line of defence, dedicated rating analysis teams and portfolio management function. Credit risk monitoring can be divided into two levels:
Monitoring of credit risk at the level of the client
At the level of individual trade operations, there is a regular monitoring, when the bank monitors the fulfilment of the contract conditions, the financial situation of the client, and also the macroeconomic conditions. To identify changes in the ability to repay the loans, the bank may set many identifiers, such as turnover, repayment discipline,
profitability, liquidity.
Monitoring of credit risk at the level of the credit and bank portfolio
The credit portfolio is divided into four main segments: non-financial corporations, mortgages, consumer credits and the other credits. Structure of the credit portfolio is dependent on the type of the bank, i.e. whether the bank is universal or specialized.Incorrect
Monitoring tasks are primarily performed by the divisional credit risk units in close cooperation with the business which acts as the first line of defence, dedicated rating analysis teams and portfolio management function. Credit risk monitoring can be divided into two levels:
Monitoring of credit risk at the level of the client
At the level of individual trade operations, there is a regular monitoring, when the bank monitors the fulfilment of the contract conditions, the financial situation of the client, and also the macroeconomic conditions. To identify changes in the ability to repay the loans, the bank may set many identifiers, such as turnover, repayment discipline,
profitability, liquidity.
Monitoring of credit risk at the level of the credit and bank portfolio
The credit portfolio is divided into four main segments: non-financial corporations, mortgages, consumer credits and the other credits. Structure of the credit portfolio is dependent on the type of the bank, i.e. whether the bank is universal or specialized. -
Question 6 of 10
6. Question
At the level of the portfolio, the bank assesses the degree of diversification, the pumping limits and accumulation of debtor in the individual rating levels. Next, the bank assesses the developments in individual sectors and adjusts the funding levels for subjects of particular sectors of the economy. The following are the aims of the entire portfolio monitoring except:
Correct
At the level of the portfolio, the bank assesses the degree of diversification, the pumping limits and accumulation of debtor in the individual rating levels. Next, the bank assesses the developments in individual sectors and adjusts the funding levels for subjects of particular sectors of the economy.
The aims of the entire portfolio monitoring are:
– to ensure, that the cumulative amount of credit does not exceed the established credit limits,
– to monitor the trends in individual credit portfolios managed by the bank,
– and to ensure, that the limits set by the bank will minimize the risk and maximize the returns.Incorrect
At the level of the portfolio, the bank assesses the degree of diversification, the pumping limits and accumulation of debtor in the individual rating levels. Next, the bank assesses the developments in individual sectors and adjusts the funding levels for subjects of particular sectors of the economy.
The aims of the entire portfolio monitoring are:
– to ensure, that the cumulative amount of credit does not exceed the established credit limits,
– to monitor the trends in individual credit portfolios managed by the bank,
– and to ensure, that the limits set by the bank will minimize the risk and maximize the returns. -
Question 7 of 10
7. Question
Monitoring and evaluation of the credit portfolio as a whole often lead to identifying trends that are not evident in individual credit monitoring. The most important trends of development that should be monitored are (Select all that applies):
Correct
Monitoring and evaluation of the credit portfolio as a whole often lead to identifying trends that are not evident in individual credit monitoring. The most important trends in development that should be monitored are:
– the share of abandoned assets in comparison with the total volume of assets,
– the classification of the risk, according to the number of clients in each class and according to the value of the credits in each class (weighted average risk rating),
– the trend to the concentration – by the sector and geographical distribution,
– credit ratio, credits which were re-negotiated the conditions, to the total volume of loans,
– the technical exceptions,
– the profitability,
– and the marketing information such as number of credits, number of clients, etcIncorrect
Monitoring and evaluation of the credit portfolio as a whole often lead to identifying trends that are not evident in individual credit monitoring. The most important trends in development that should be monitored are:
– the share of abandoned assets in comparison with the total volume of assets,
– the classification of the risk, according to the number of clients in each class and according to the value of the credits in each class (weighted average risk rating),
– the trend to the concentration – by the sector and geographical distribution,
– credit ratio, credits which were re-negotiated the conditions, to the total volume of loans,
– the technical exceptions,
– the profitability,
– and the marketing information such as number of credits, number of clients, etc -
Question 8 of 10
8. Question
The trends and limits are assessed at the level of the credit portfolio. All the exceeded limits and warming trends must be subjected to analysis and if it is necessary to take steps to remedy by (Select all that applies)
Correct
The trends and limits are assessed at the level of the credit portfolio. All the exceeded limits and warming trends must be subjected to analysis and if it is necessary to take steps to remedy, such as:
– block the credit limits,
– the rejection of applications for prolongation credits,
– considering of credit limit revision,
– reconsider the cost of credit.Incorrect
The trends and limits are assessed at the level of the credit portfolio. All the exceeded limits and warming trends must be subjected to analysis and if it is necessary to take steps to remedy, such as:
– block the credit limits,
– the rejection of applications for prolongation credits,
– considering of credit limit revision,
– reconsider the cost of credit. -
Question 9 of 10
9. Question
What is the aim of credit risk management for bankers?
Correct
Credit risk management for banking is a robust and flexible solution for measuring and monitoring regulatory credit risk measures of a bank portfolio. Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. The aim of credit risk management is to maximize a bank´s risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Banks need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions.
Incorrect
Credit risk management for banking is a robust and flexible solution for measuring and monitoring regulatory credit risk measures of a bank portfolio. Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. The aim of credit risk management is to maximize a bank´s risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Banks need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions.
-
Question 10 of 10
10. Question
When financial prices change dramatically, it can increase costs, reduce revenues, or otherwise adversely impact the profitability of an organization. Financial fluctuations may make it more difficult to plan and budget, price goods and services, and allocate capital. What are the three main sources of financial risk? (Select all that applies)
Correct
When financial prices change dramatically, it can increase costs, reduce revenues, or otherwise adversely impact the profitability of an organization. Financial fluctuations may make it more difficult to plan and budget, price goods and services, and allocate capital. The three main sources of financial risk are:
Financial risks arising from an organization’s exposure to changes in market prices, such as interest rates, exchange rates, and commodity prices
Financial risks resulting from internal actions or failures of the organization, particularly people, processes and systems.
Financial risk arising from the actions of, and transaction with, other organizations such as vendors, customers and counterparties in derivatives transactions.Incorrect
When financial prices change dramatically, it can increase costs, reduce revenues, or otherwise adversely impact the profitability of an organization. Financial fluctuations may make it more difficult to plan and budget, price goods and services, and allocate capital. The three main sources of financial risk are:
Financial risks arising from an organization’s exposure to changes in market prices, such as interest rates, exchange rates, and commodity prices
Financial risks resulting from internal actions or failures of the organization, particularly people, processes and systems.
Financial risk arising from the actions of, and transaction with, other organizations such as vendors, customers and counterparties in derivatives transactions.