CBA Risk Management 3

Question 1

A bank discovers its loan loss model systematically underestimates defaults during economic downturns. This is an example of:

Accepted Answer

Model risk

Answer

Model risk arises when a model produces inaccurate outputs due to flawed assumptions, errors, or misuse.

Question 2

Which metric measures the potential loss on a trading portfolio over a given time horizon at a specified confidence level?

Accepted Answer

Value at Risk (VaR)

Answer

VaR quantifies the maximum expected loss over a specific period at a given confidence level (e.g., 99% over one day).

Question 3

Under the OCC's heightened standards for large banks, which governance body bears ultimate responsibility for the bank's risk appetite?

Accepted Answer

Board of Directors

Answer

The Board of Directors is ultimately responsible for approving and overseeing the bank's risk appetite framework.

Question 4

A bank experiences a sudden large outflow of deposits due to negative social media rumors. This scenario represents:

Accepted Answer

Reputational risk triggering liquidity risk

Answer

Reputational risk can rapidly convert into liquidity risk when depositor confidence erodes and withdrawals spike.

Question 5

The Risk Appetite Statement (RAS) should be MOST closely aligned with:

Accepted Answer

The bank's strategic plan and business model

Answer

An effective RAS links the amount of risk a bank is willing to accept to achieving its strategic objectives.

(CBA) Certified Bank Auditor Practice Test