CORES Scenario Analysis & Stress Testing 2

Question 1

A bank's stress test reveals a 40% drop in net interest income under a severe rate shock scenario. Which management action is MOST appropriate as an immediate response?

Accepted Answer

Review asset-liability duration gaps and consider hedging strategies

Answer

Duration mismatches drive net interest income sensitivity, so reviewing and hedging asset-liability gaps directly addresses the identified stress vulnerability.

Question 2

In reverse stress testing, what is the primary starting point for the analysis?

Accepted Answer

A predefined loss threshold or business failure outcome

Answer

Reverse stress testing works backward from a defined failure or threshold outcome to identify scenarios that could produce it.

Question 3

Which of the following BEST describes a 'plausibility filter' applied during scenario selection?

Accepted Answer

A review ensuring scenarios are severe yet conceivably possible given historical or emerging risks

Answer

A plausibility filter ensures chosen scenarios are both sufficiently severe and credibly possible, not merely extreme statistical outliers.

Question 4

An operational risk team is designing a pandemic scenario. Which dimension is MOST critical to include beyond direct health impacts?

Accepted Answer

Staff unavailability and third-party service disruption

Answer

Pandemic scenarios must capture workforce and supply chain disruption because operational risk materializes through process and people failures, not just market moves.

Question 5

When aggregating scenario losses across business lines, which challenge is MOST commonly encountered?

Accepted Answer

Double-counting correlated losses that affect multiple units simultaneously

Answer

Correlated scenarios can trigger losses in multiple business lines at once, making simple summation overstate total impact if dependencies are not modeled.

(CORES) Certified Operational Risk Executive Specialist Practice Test

(CORES) Certified Operational Risk Executive Specialist Practice Test

CORES Scenario Analysis & Stress Testing 2