CPFM Financial Risk Management 3

Question 1

Credit risk is best defined as the risk that:

Accepted Answer

A counterparty fails to meet its contractual obligations

Answer

Credit risk is the potential loss arising when a borrower or counterparty defaults on its obligations.

Question 2

Which of the following best describes liquidity risk?

Accepted Answer

The risk of being unable to sell an asset or meet obligations without significant loss

Answer

Liquidity risk arises when an entity cannot convert assets to cash or fund obligations without accepting a sizable price concession.

Question 3

A bond's duration measures its sensitivity to changes in:

Accepted Answer

Interest rates

Answer

Duration estimates the percentage change in a bond's price for a given change in interest rates.

Question 4

Stress testing differs from VaR primarily because it:

Accepted Answer

Examines impact of extreme, often hypothetical scenarios

Answer

Stress testing evaluates portfolio impact under severe but plausible scenarios that statistical models may underweight.

Question 5

The risk that a firm cannot roll over its short-term debt as it matures is called:

Accepted Answer

Refinancing (funding) risk

Answer

Refinancing or funding risk is the danger of being unable to replace maturing debt on acceptable terms.

CPFM Practice Test