Algorithms Risk Assessment & Management 3 ā Questions and Answers
Question 1: In algorithmic trading, which risk control mechanism automatically halts trading when losses exceed a predefined threshold?
- Stop-loss order
- Circuit breaker
- Kill switch
- All of the above (Correct answer)
Correct answer: All of the above
Stop-loss orders, circuit breakers, and kill switches are all risk control mechanisms used in algorithmic trading to cap losses automatically.
Question 2: A risk assessment assigns HIGH likelihood and LOW impact to a vulnerability. Where does this risk typically fall in a 2Ć2 risk matrix?
- High priority ā act immediately
- Medium priority ā monitor and plan (Correct answer)
- Low priority ā accept without action
- Critical priority ā escalate to executives
Correct answer: Medium priority ā monitor and plan
High likelihood combined with low impact places a risk in a medium-priority zone requiring monitoring and contingency planning rather than immediate costly action.
Question 3: What is the primary goal of a Fault Tree Analysis (FTA) in software risk management?
- Enumerate all possible software features
- Identify combinations of events that can cause a top-level failure (Correct answer)
- Measure system performance under load
- Prioritize feature development by business value
Correct answer: Identify combinations of events that can cause a top-level failure
FTA works top-down from an undesired system event, using Boolean logic gates to identify contributing causes and their combinations.
Question 4: Which concept describes an organization's willingness to accept risk in pursuit of its objectives?
- Risk capacity
- Risk appetite (Correct answer)
- Risk threshold
- Risk velocity
Correct answer: Risk appetite
Risk appetite is the amount and type of risk an organization is willing to pursue or retain in order to achieve its strategic goals.
Question 5: An algorithm is deployed to a critical healthcare system. The team performs FMEA. What does this analysis primarily produce?
- A ranked list of failure modes and their effects on system safety (Correct answer)
- A budget estimate for system development
- A schedule for feature delivery
- A list of approved software vendors
Correct answer: A ranked list of failure modes and their effects on system safety
Failure Mode and Effects Analysis (FMEA) identifies potential failure modes, their causes, effects, and severity to prioritize risk reduction efforts.
Question 6: Which risk management framework is specifically designed for information security risk and is published by NIST?
- ISO 31000
- COSO ERM
- NIST RMF (Correct answer)
- PMBOK Risk Chapter
Correct answer: NIST RMF
The NIST Risk Management Framework (RMF) provides a disciplined, structured process for integrating security and privacy risk management into federal information systems.
Question 7: A team discovers that their sorting algorithm has O(nĀ²) worst-case behavior on nearly-sorted data. This is best categorized as which type of risk?
- Security risk
- Performance risk (Correct answer)
- Compliance risk
- Personnel risk
Correct answer: Performance risk
A worst-case complexity problem that could degrade system responsiveness under certain inputs is a performance (technical) risk requiring mitigation or workaround.
Algorithms Risk Assessment & Management 3
In algorithmic trading, which risk control mechanism automatically halts trading when losses exceed a predefined threshold?