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CISI – Managing Operational Risk in Financial Institutions – Joshua – Quiz 3
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Question 1 of 10
1. Question
Which of the options below bests define Risk appetite?
Correct
Risk Appetite is an umbrella term which encapsulates both Risk Tolerance
(in terms of the degree of confidence that is required that specified objectives will not be compromised/tolerance thresholds will not be breached) and the quantum and nature of risks which are actually desired (as opposed to merely tolerated) as a means to generate profits and value.Incorrect
Risk Appetite is an umbrella term which encapsulates both Risk Tolerance
(in terms of the degree of confidence that is required that specified objectives will not be compromised/tolerance thresholds will not be breached) and the quantum and nature of risks which are actually desired (as opposed to merely tolerated) as a means to generate profits and value. -
Question 2 of 10
2. Question
Which of the following options does Risk appetite consider? (Select all that applies)
Correct
isk Appetite is about:
– Desire for risk – i.e. the quantum and type of risk the organisation
specifically desires in order to realise its profitability and growth objectives.
– Capacity for risk – i.e. the absolute limit of risk that can be taken.
– Tolerance for risk – i.e. how much risk the organisation is prepared to take
(i.e. what probability it is prepared to accept that specified objectives will not
be met).Incorrect
isk Appetite is about:
– Desire for risk – i.e. the quantum and type of risk the organisation
specifically desires in order to realise its profitability and growth objectives.
– Capacity for risk – i.e. the absolute limit of risk that can be taken.
– Tolerance for risk – i.e. how much risk the organisation is prepared to take
(i.e. what probability it is prepared to accept that specified objectives will not
be met). -
Question 3 of 10
3. Question
What are the elements of risk appetite? (Select all that applies)
Correct
There are three elements to consider:
Risk capacity: an assessment of the maximum risk the firm can bear
Risk appetite: the quantum of risk the firm is willing to accept within its overall capacity
Risk profile: the allocation of risk appetite across risk categories (e.g. Insurance Risk,
Market Risk, Credit Risk, Operational Risk, etc)Incorrect
There are three elements to consider:
Risk capacity: an assessment of the maximum risk the firm can bear
Risk appetite: the quantum of risk the firm is willing to accept within its overall capacity
Risk profile: the allocation of risk appetite across risk categories (e.g. Insurance Risk,
Market Risk, Credit Risk, Operational Risk, etc) -
Question 4 of 10
4. Question
Risk is the probability that a particular adverse event occurs during a stated period of time or results from a particular challenge. What are the different classifications of risk?
Correct
Pure risk: A risk which has a chance of loss or no loss. Example. A building may get affected by fire or not. These are best covered by insurance.
Speculative risk: Involves a chance of gain/loss. Example. A builder may take a risk by promoting a new venture depending upon the prevailing conditions in the vicinity of the proposed project, but it may bring him gain/loss.
Fundamental risk: These are external to a project and which, if they materialise, would be on a large scale and cannot be prevented. These risks are associated with major natural, economic, political or social changes and generate large scale losses. Examples are Floods, earthquakes, fluctuation of exchange rates, etc. This risk may or may not be insurable.
Particular risk: These are project-specific risks and are identified within the parameters of a project and can be controlled during the implementation of a project, e.g. quality risks, safety risks, legal risks, etc.
Incorrect
Pure risk: A risk which has a chance of loss or no loss. Example. A building may get affected by fire or not. These are best covered by insurance.
Speculative risk: Involves a chance of gain/loss. Example. A builder may take a risk by promoting a new venture depending upon the prevailing conditions in the vicinity of the proposed project, but it may bring him gain/loss.
Fundamental risk: These are external to a project and which, if they materialise, would be on a large scale and cannot be prevented. These risks are associated with major natural, economic, political or social changes and generate large scale losses. Examples are Floods, earthquakes, fluctuation of exchange rates, etc. This risk may or may not be insurable.
Particular risk: These are project-specific risks and are identified within the parameters of a project and can be controlled during the implementation of a project, e.g. quality risks, safety risks, legal risks, etc.
-
Question 5 of 10
5. Question
Qualitative risk assessment involves the registration of identified risks in a formal manner. A risk register is used for formalising this process, which of the following should be included in it?
Correct
Qualitative risk assessment involves the registration of identified risks in a formal manner. A risk register is used for formalising this process should include Classification and reference, Description of the risk, Relationship of the risk to other risks, Potential impact, Likelihood of occurrence, Risk response/mitigation strategy, Allocation of risks to stakeholders.
Incorrect
Qualitative risk assessment involves the registration of identified risks in a formal manner. A risk register is used for formalising this process should include Classification and reference, Description of the risk, Relationship of the risk to other risks, Potential impact, Likelihood of occurrence, Risk response/mitigation strategy, Allocation of risks to stakeholders.
-
Question 6 of 10
6. Question
What are the benefits of a proper risk management process? (Select all that applies)
Correct
Benefits of risk management are:
To maximise the efficiency of risk management, the risk management process should be continuously developed during the entire project.The benefits of risk management finally go to the stakeholders involved. A clear understanding and awareness of potential risks in the project contribute to better management of risks by suitable mitigation techniques. Another benefit of working with risk management is increased level of control over the whole project and more efficient problem-solving processes which can be supported on a more genuine basis
Risk management when conducted effectively, reduce sudden surprises. The advantage with risk management is that the stakeholders are aware as to the risk that they have to bear among all the risks that have been identified in a project and can prepare themselves accordingly, should any eventuality occur.
Incorrect
Benefits of risk management are:
To maximise the efficiency of risk management, the risk management process should be continuously developed during the entire project.The benefits of risk management finally go to the stakeholders involved. A clear understanding and awareness of potential risks in the project contribute to better management of risks by suitable mitigation techniques. Another benefit of working with risk management is increased level of control over the whole project and more efficient problem-solving processes which can be supported on a more genuine basis
Risk management when conducted effectively, reduce sudden surprises. The advantage with risk management is that the stakeholders are aware as to the risk that they have to bear among all the risks that have been identified in a project and can prepare themselves accordingly, should any eventuality occur.
-
Question 7 of 10
7. Question
Poor risk management exposes organizations to civil and statutory offences, which can result in fines or other legal complications. The result of not managing risks can quickly deplete an organization’s reserves. Which of the under-listed risks can have a financial impact on an organization? (Select all that applies)
Correct
Exposures to financial loss can include real and personal property, as well as property that is tangible and intangible, and personnel losses. Revenues can be lost by profit margins or expense increases. Poor risk management exposes organizations to civil and statutory offences, which can result in fines or other legal complications. The result of not managing risks can quickly deplete an organization’s reserves. Examples of risks with financial impact include:
Retained losses—insurance deductibles, retention amounts, or exclusions
Net insurance proceeds
Costs for loss control measures
Claim management expenses
Administrative costs to manage programsIncorrect
Exposures to financial loss can include real and personal property, as well as property that is tangible and intangible, and personnel losses. Revenues can be lost by profit margins or expense increases. Poor risk management exposes organizations to civil and statutory offences, which can result in fines or other legal complications. The result of not managing risks can quickly deplete an organization’s reserves. Examples of risks with financial impact include:
Retained losses—insurance deductibles, retention amounts, or exclusions
Net insurance proceeds
Costs for loss control measures
Claim management expenses
Administrative costs to manage programs -
Question 8 of 10
8. Question
Without becoming directly involved in managing risk, boards can fulfil their role in risk oversight by (Select all that applies):
Correct
The board should not take a direct role in managing risks. The board’s role should be limited to risk oversight of management and corporate issues that affect risk. Without becoming directly involved in managing risk, boards can fulfil their role in risk oversight by:
Developing policies and procedures around the risk that are consistent with the organization’s strategy and risk appetite.
Following up on management’s implementation of risk management policies and procedures.
Following up to be assured that risk management policies and procedures function as they are intended.
Taking steps to foster risk awareness.
Encourage an organizational culture of risk adjusting awareness.Incorrect
The board should not take a direct role in managing risks. The board’s role should be limited to risk oversight of management and corporate issues that affect risk. Without becoming directly involved in managing risk, boards can fulfil their role in risk oversight by:
Developing policies and procedures around the risk that are consistent with the organization’s strategy and risk appetite.
Following up on management’s implementation of risk management policies and procedures.
Following up to be assured that risk management policies and procedures function as they are intended.
Taking steps to foster risk awareness.
Encourage an organizational culture of risk adjusting awareness. -
Question 9 of 10
9. Question
Boards should be looking at areas that either may be subject to risk or maybe out of compliance with established best practices on risk management, from a domestic and global standpoint. The Board should consider these specific areas except
Correct
Boards should be looking at areas that either may be subject to risk or maybe out of compliance with established best practices on risk management, from a domestic and global standpoint. Specific areas that boards should review include:
Fiduciary duties
Federal and state laws and regulations
Stock exchange listing requirements
Established and evolving best practices—domestic and worldwideIncorrect
Boards should be looking at areas that either may be subject to risk or maybe out of compliance with established best practices on risk management, from a domestic and global standpoint. Specific areas that boards should review include:
Fiduciary duties
Federal and state laws and regulations
Stock exchange listing requirements
Established and evolving best practices—domestic and worldwide -
Question 10 of 10
10. Question
With regards to solution identification as an operational risk management process, once the causes of a problem are identified, the next step is finding a viable solution for each cause. Which of the following points should be considered? (Select all that applies)
Correct
Once the causes of a problem are identified, the next step is finding a viable solution for each cause. Which of the following points should be considered?
a. Matching solutions to causes, hence making sure that each cause has been addressed
b. Reviewing identified solutions to ensure that they will not cause new problems themselves
c. If possible, including a member of the department that will implement the solution in the discussions.Incorrect
Once the causes of a problem are identified, the next step is finding a viable solution for each cause. Which of the following points should be considered?
a. Matching solutions to causes, hence making sure that each cause has been addressed
b. Reviewing identified solutions to ensure that they will not cause new problems themselves
c. If possible, including a member of the department that will implement the solution in the discussions.