Risk Management in Banking Flashcards
7 cards from real CBA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management in Banking flashcards as text
Which of the following is NOT a component of the 'three lines of defense' model in bank risk governance?
Answer: External auditors providing attestation (3rd line)
The three lines of defense model positions internal audit—not external auditors—as the third line of independent assurance.
A bank's risk appetite statement should PRIMARILY:
Answer: Define the amount and types of risk the bank is willing to accept to achieve its objectives
A risk appetite statement articulates the level and nature of risk a bank is willing to take in pursuit of its strategic goals.
Counterparty credit risk (CCR) in derivatives is BEST measured using:
Answer: Current exposure plus potential future exposure (PFE)
CCR is measured using current exposure (current MTM if positive) plus potential future exposure to capture how exposure may grow over time.
A bank discovers that a critical payment system was unavailable for 4 hours due to a software error. This is an example of which Basel risk category?
Answer: Operational risk
System failures that cause service disruptions fall under operational risk, which includes technology and process failures.
Which stress testing approach requires banks to assess losses based on hypothetical but plausible adverse economic scenarios defined by the regulator?
Answer: Supervisory stress test (DFAST/CCAR)
DFAST and CCAR are supervisory stress tests where regulators prescribe adverse scenarios banks must use to assess capital adequacy.
What does the term 'wrong-way risk' refer to in the context of counterparty credit risk?
Answer: Risk that collateral value falls when counterparty creditworthiness deteriorates
Wrong-way risk occurs when exposure to a counterparty is positively correlated with that counterparty's probability of default.
In the context of model risk management, 'model validation' refers to:
Answer: Independent evaluation of a model's conceptual soundness, data integrity, and performance
Model validation is the independent assessment of whether a model is conceptually sound, uses appropriate data, and performs as intended.