CISI UAE FRR Risk Management Frameworks 3

Question 1

Under CBUAE guidance, 'Interest Rate Risk in the Banking Book' (IRRBB) includes which sub-type of risk?

Accepted Answer

Repricing risk, yield curve risk, basis risk, and optionality risk

Answer

IRRBB has four key components: repricing risk (timing differences in rate resets), yield curve risk (non-parallel shifts), basis risk (different rate indices), and optionality risk (embedded options in products).

Question 2

The CBUAE's guidance on credit risk provisioning under IFRS 9 requires banks to recognise:

Accepted Answer

Expected Credit Losses (ECL) based on forward-looking probability-weighted scenarios

Answer

IFRS 9 requires forward-looking ECL provisioning across three stages based on credit deterioration, replacing the IAS 39 incurred loss model with earlier recognition of potential credit losses.

Question 3

Under UAE risk management frameworks, 'Key Risk Indicators' (KRIs) are used to:

Accepted Answer

Provide early warning signals that risk levels are approaching or exceeding appetite thresholds

Answer

KRIs are forward-looking metrics that signal when risk exposure is moving towards or beyond agreed thresholds, enabling management to take pre-emptive action before losses materialise.

Question 4

The CBUAE's Supervisory Review and Evaluation Process (SREP) assesses:

Accepted Answer

Business model viability, governance, capital adequacy, and liquidity risk holistically

Answer

SREP is a comprehensive supervisory assessment covering business model sustainability, governance quality, internal capital adequacy (ICAAP), internal liquidity adequacy (ILAAP), and overall risk profile to set supervisory capital and liquidity add-ons.

Question 5

Under the UAE's risk management framework, 'Wrong Way Risk' refers to:

Accepted Answer

Correlation between counterparty default risk and the value of the exposure increasing simultaneously

Answer

Wrong Way Risk occurs when exposure to a counterparty increases at the same time as the probability of their default — for example, buying protection from a counterparty whose creditworthiness is linked to the reference asset.

CISI UAE FRR Practice Test

CISI UAE FRR Practice Test

CISI UAE FRR Risk Management Frameworks 3