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Managing Operational Risk in Financial Institutions
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Question 1 of 10
1. Question
When strong & effective risk management and controls within securities firms are implemented, what is the end result?
Correct
Sound and effective risk management and controls promote both securities firm and industry stability which, in turn, inspires confidence in the investing public and counterparties.
Incorrect
Sound and effective risk management and controls promote both securities firm and industry stability which, in turn, inspires confidence in the investing public and counterparties.
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Question 2 of 10
2. Question
Internal risk management controls provide the following important functions except:
Correct
Internal risks are faced by a company from within its organization and arise during the normal operations of the company as such Internal risk management does not protect a firm and its franchise from hackers.
Incorrect
Internal risks are faced by a company from within its organization and arise during the normal operations of the company as such Internal risk management does not protect a firm and its franchise from hackers.
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Question 3 of 10
3. Question
The market risk inherent in any investment is the risk that the investment will not be as profitable as the investor expected due to
Correct
Market risk involves the risk that prices or rates will adversely change due to economic forces. Such risks include adverse effects of movements in equity and interest rate markets, currency exchange rates, and commodity prices.
Incorrect
Market risk involves the risk that prices or rates will adversely change due to economic forces. Such risks include adverse effects of movements in equity and interest rate markets, currency exchange rates, and commodity prices.
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Question 4 of 10
4. Question
The control environment is a representation of the attitude, awareness, and actions of a securities firm’s governing body and senior management toward the safeguarding of the firm’s financial resources and the integrity of internally generated information. What variables influence the control environment’s effectiveness? (Select all that applies)
Correct
A strong control environment is the essential basis of a firm’s efforts to protect itself from unanticipated losses and erosion of capital. When working properly, the internal accounting controls and risk management and controls can spot and identify potential problems early on and, while it may not prevent unanticipated losses (nor should it be so extensive as to prevent losses), it can bring such situations quickly to light within the governing body and senior management’s thresholds.
Incorrect
A strong control environment is the essential basis of a firm’s efforts to protect itself from unanticipated losses and erosion of capital. When working properly, the internal accounting controls and risk management and controls can spot and identify potential problems early on and, while it may not prevent unanticipated losses (nor should it be so extensive as to prevent losses), it can bring such situations quickly to light within the governing body and senior management’s thresholds.
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Question 5 of 10
5. Question
Which of the following is one of the most important risk management tools in the banking system?
Correct
Asset and liability management is one of the most important risk management measures at a bank. It is one of the most important tools for decision making that sets out to maximize stakeholder value. Nevertheless, it is important to track the external factors of the asset and liability management in the market to remain in the long term and to prepare for negative effects.
Incorrect
Asset and liability management is one of the most important risk management measures at a bank. It is one of the most important tools for decision making that sets out to maximize stakeholder value. Nevertheless, it is important to track the external factors of the asset and liability management in the market to remain in the long term and to prepare for negative effects.
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Question 6 of 10
6. Question
Since Capital structure consists of long-term debt and shareholders’ fund, which of the options below identify the importance of capital structure to a company? (Select all that applies)
Correct
Capital structure refers to the proportions or combinations of equity share capital, preference share capital, debentures, long-term loans, retained earnings and other long-term sources of funds in the total amount of capital which a firm should raise to run its business.
Incorrect
Capital structure refers to the proportions or combinations of equity share capital, preference share capital, debentures, long-term loans, retained earnings and other long-term sources of funds in the total amount of capital which a firm should raise to run its business.
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Question 7 of 10
7. Question
Which of the following factors influence the capital structure decisions by management?
Correct
The higher the debt content in the capital structure of a company, the higher will be the risk of variation in the expected earnings available to equity shareholders. If the return on investment on total capital employed (i.e., shareholders’ fund plus long-term debt) exceeds the interest rate, the shareholders get a higher return.
Incorrect
The higher the debt content in the capital structure of a company, the higher will be the risk of variation in the expected earnings available to equity shareholders. If the return on investment on total capital employed (i.e., shareholders’ fund plus long-term debt) exceeds the interest rate, the shareholders get a higher return.
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Question 8 of 10
8. Question
Governmental and regulatory bodies often enact new regulations or update old ones. What are some of the regulatory changes that may affect companies or industries? (Select all that applies)
Correct
Changes to international trade policies may affect companies that regularly export and import goods. They also affect investors that engage in foreign direct investments. Tax policy reforms can affect the bottom line for businesses and individual investors alike. Any change to income tax law directly affects the income being brought in by respective parties and may present a new regulatory risk.
Incorrect
Changes to international trade policies may affect companies that regularly export and import goods. They also affect investors that engage in foreign direct investments. Tax policy reforms can affect the bottom line for businesses and individual investors alike. Any change to income tax law directly affects the income being brought in by respective parties and may present a new regulatory risk.
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Question 9 of 10
9. Question
What issues are companies trying to resolve while attempting to achieve their sales and profit projections? (Select all that applies)
Correct
While an opportunity for new products can be identified at any level, the vision of the product potential must be shared and championed at all levels. Not only do successful products help customers create maximum experiences in their everyday lives, but the process of developing the products themselves must be an equally powerful and rewarding experience for the product team.
Incorrect
While an opportunity for new products can be identified at any level, the vision of the product potential must be shared and championed at all levels. Not only do successful products help customers create maximum experiences in their everyday lives, but the process of developing the products themselves must be an equally powerful and rewarding experience for the product team.
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Question 10 of 10
10. Question
What are the three key factors must be present to guarantee the highest potential for success in any business? (Select all that applies)
Correct
In order for products to be successful, they must have features and forms that consumers quickly recognize as useful, usable, and desirable.
Incorrect
In order for products to be successful, they must have features and forms that consumers quickly recognize as useful, usable, and desirable.