CFA CFA Risk Management & Analysis

Question 1

Which risk measure expresses the minimum loss expected over a given time period at a specified confidence level?

Accepted Answer

Value at Risk (VaR)

Answer

Value at Risk (VaR) quantifies the minimum expected loss at a given confidence level over a specified horizon.

Question 2

Credit risk refers to the possibility that a counterparty will:

Accepted Answer

Fail to fulfill its financial obligations

Answer

Credit risk is the risk that a borrower or counterparty defaults or fails to meet its contractual financial obligations.

Question 3

Which of the following best describes liquidity risk in financial markets?

Accepted Answer

The risk that an asset cannot be sold quickly without a significant price concession

Answer

Liquidity risk is the danger that a position cannot be exited at a fair price in a timely manner.

Question 4

Conditional Value at Risk (CVaR) is also known as:

Accepted Answer

Expected Shortfall

Answer

CVaR, or Expected Shortfall, measures the average loss in the worst-case scenarios beyond the VaR threshold.

Question 5

Operational risk is best defined as the risk arising from:

Accepted Answer

Failures in internal processes, people, systems, or external events

Answer

Operational risk encompasses losses caused by inadequate or failed internal processes, human errors, system failures, or external events.

CFA Practice Test