CRA Financial Risk Assessment 2

Question 1

Which metric best captures the potential loss in a portfolio during a market stress event beyond normal volatility?

Accepted Answer

Expected Shortfall (CVaR)

Answer

Standard Deviation

Answer

Beta Coefficient

Answer

Sharpe Ratio

Question 2

A bank's loan portfolio has a 1-year probability of default (PD) of 2% and loss given default (LGD) of 45%. What is the expected loss rate?

Accepted Answer

0.90%

Answer

2.25%

Answer

0.45%

Answer

4.50%

Question 3

Which approach to credit risk modeling uses historical default data and transition matrices to estimate future credit migration?

Accepted Answer

CreditMetrics

Answer

KMV Model

Answer

CreditRisk+

Answer

Merton Structural Model

Question 4

A financial institution notices that two major trading counterparties are both exposed to the same sovereign debt. This illustrates which type of credit risk concentration?

Accepted Answer

Sectoral concentration risk

Answer

Single-name concentration risk

Answer

Wrong-way risk

Answer

Correlation risk

Question 5

Under the Basel III framework, the Liquidity Coverage Ratio (LCR) is designed to ensure banks can survive a stress scenario lasting how long?

Accepted Answer

30 days

Answer

7 days

Answer

90 days

Answer

1 year

Question 6

Which financial risk assessment technique simulates thousands of random scenarios to model the distribution of portfolio outcomes?

Accepted Answer

Monte Carlo simulation

Answer

Historical simulation

Answer

Delta-normal method

Answer

Factor analysis

Question 7

When assessing a company's financial risk, a Debt Service Coverage Ratio (DSCR) below 1.0 indicates what?

Accepted Answer

The company cannot cover debt payments from operating income

Answer

The company has excessive equity

Answer

The company's debt is investment grade

Answer

The company has strong liquidity