CFA Risk Management & Analysis Flashcards

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

Answer: Value at Risk (VaR)

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

Credit risk refers to the possibility that a counterparty will:

Answer: Fail to fulfill its financial obligations

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

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

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

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

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

Answer: Expected Shortfall

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

Operational risk is best defined as the risk arising from:

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

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

Which concept measures the sensitivity of a portfolio's value to a one-basis-point change in interest rates?

Answer: DV01 (Dollar Value of 01)

DV01, or the dollar value of a basis point, measures the price change of a bond or portfolio for a one-basis-point shift in yield.