CBA Risk Management in Banking 3

Question 1

Which metric measures the potential loss in a portfolio's value over a specific time horizon at a given confidence level?

Accepted Answer

Value at Risk (VaR)

Answer

Value at Risk (VaR) estimates the maximum potential loss over a defined period at a specified confidence level (e.g., 99%, 10-day).

Question 2

The Liquidity Coverage Ratio (LCR) requires banks to hold sufficient High-Quality Liquid Assets (HQLA) to survive a stress scenario lasting:

Accepted Answer

30 days

Answer

The LCR mandates enough HQLA to cover net cash outflows over a 30-day stress period.

Question 3

A bank extends $50M in loans but only $30M is immediately funded. The $20M gap represents which type of risk?

Accepted Answer

Funding gap risk

Answer

A funding gap arises when committed loan disbursements exceed currently available funding, creating a liquidity shortfall.

Question 4

Which approach under Basel III for credit risk uses external credit ratings to assign risk weights to exposures?

Accepted Answer

Standardized Approach (SA)

Answer

The Standardized Approach maps exposures to risk weights based on external credit ratings from recognized rating agencies.

Question 5

When a bank auditor identifies that loan loss reserves are systematically below expected loss estimates, this MOST directly indicates a problem with:

Accepted Answer

Allowance for Credit Loss (ACL) adequacy

Answer

Insufficient loan loss reserves relative to expected losses points to an inadequacy in the Allowance for Credit Loss methodology or application.

(CBA) Certified Bank Auditor Practice Test