CBA Risk Management in Banking 2

Question 1

Under Basel III, what is the minimum Common Equity Tier 1 (CET1) capital ratio required for banks?

Accepted Answer

4.5%

Answer

Basel III requires banks to hold a minimum CET1 ratio of 4.5% of risk-weighted assets.

Question 2

Which risk management technique involves assigning probability distributions to uncertain variables to assess the range of possible outcomes?

Accepted Answer

Monte Carlo simulation

Answer

Monte Carlo simulation uses random sampling across probability distributions to model the range of possible financial outcomes.

Question 3

A bank's net interest margin (NIM) declines when interest rates rise unexpectedly. This is an example of which risk?

Accepted Answer

Interest rate risk in the banking book (IRRBB)

Answer

IRRBB captures the adverse impact of interest rate movements on a bank's net interest income and economic value.

Question 4

The risk that a bank cannot meet its payment obligations as they fall due without incurring unacceptable losses is called:

Accepted Answer

Funding liquidity risk

Answer

Funding liquidity risk is the inability to raise funds to meet obligations on time without unacceptable cost.

Question 5

Which of the following best describes the 'repricing risk' component of interest rate risk?

Accepted Answer

Risk from timing differences in asset and liability maturity or repricing

Answer

Repricing risk arises from timing mismatches between when assets and liabilities reprice or mature.

(CBA) Certified Bank Auditor Practice Test