Risk Assessment & Underwriting Flashcards
7 cards from real CFP 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 Assessment & Underwriting flashcards as text
In fintech credit risk, what does 'population stability index' (PSI) measure?
Answer: The shift in score distribution between model development and deployment populations
PSI quantifies how much the distribution of model scores has shifted over time, signaling when a model may no longer reflect the current applicant population.
A fintech lender operating across multiple countries faces FX risk on cross-border loans. Which hedging instrument is MOST directly applicable to managing this risk?
Answer: Currency forward contract
Currency forward contracts lock in an exchange rate for a future date, directly offsetting FX exposure on cross-border loan repayments.
Under Basel III framework principles applied to fintech credit risk, what is the purpose of the Capital Conservation Buffer?
Answer: To build capital above minimum requirements that can be drawn down during stress periods
The Capital Conservation Buffer requires banks (and by extension regulated fintechs) to hold extra capital in good times, preserving lending capacity during downturns.
Which technique allows a fintech underwriter to assess why a machine learning model denied a specific applicant's loan, meeting explainability requirements?
Answer: SHAP (SHapley Additive exPlanations) values
SHAP values decompose a model's prediction into each feature's contribution, enabling specific, defensible adverse action reason codes for individual applicants.
A digital insurance startup offers parametric earthquake coverage that pays automatically when USGS magnitude thresholds are exceeded. What is the PRIMARY underwriting risk unique to parametric structures?
Answer: Basis risk—the trigger event may not match the insured's actual loss
Basis risk in parametric insurance occurs when the indexed trigger event (e.g., magnitude) doesn't correlate perfectly with the individual policyholder's actual damage.
What is the MOST significant operational risk that fintech lenders face when using third-party data providers for underwriting decisions?
Answer: Vendor dependency and data quality failures that can corrupt credit models
Reliance on external data vendors creates concentration risk; data outages, quality issues, or vendor failures can disrupt decisioning and introduce model errors.
In peer-to-peer lending platforms, who bears the credit risk on loans and what is the underwriting implication?
Answer: Individual investors bear credit risk, requiring transparent risk disclosure and robust borrower grading
In P2P lending, investors bear credit risk directly, making transparent borrower risk grading and full disclosure of underwriting methodology essential obligations.