ERAC Audit Procedures & Risk Mitigation 3

Question 1

Which regulatory body primarily oversees energy derivatives trading conducted by U.S. financial market participants?

Accepted Answer

CFTC

Answer

The Commodity Futures Trading Commission (CFTC) has primary jurisdiction over energy commodity derivatives and futures markets in the United States.

Question 2

An auditor reviewing a pipeline company's credit risk finds no netting agreements with counterparties. What risk does this create?

Accepted Answer

Gross rather than net credit exposure, inflating potential losses

Answer

Without netting agreements, credit exposure is calculated on a gross basis, meaning gains and losses cannot offset each other, significantly overstating the true credit risk.

Question 3

When auditing an oil refinery's operational risk controls, which document best evidences that emergency shutdown procedures have been tested?

Accepted Answer

Drill logs and post-exercise after-action reports

Answer

Drill logs and after-action reports provide direct evidence that emergency shutdown procedures have been executed and reviewed, confirming control effectiveness.

Question 4

A risk auditor is assessing basis risk in a natural gas hedge. Basis risk arises when:

Accepted Answer

The price of the hedged commodity and the hedging instrument do not move in lockstep

Answer

Basis risk occurs when the hedging instrument (e.g., Henry Hub futures) and the physical commodity price at the delivery location do not move in perfect correlation.

Question 5

Under CFTC rules, what is the primary obligation of a registered swap dealer when managing counterparty credit risk?

Accepted Answer

To establish and maintain credit support annexes and initial margin requirements

Answer

Registered swap dealers must establish Credit Support Annexes (CSAs) and comply with initial and variation margin requirements to manage counterparty credit risk under CFTC regulations.

(ERAC) Energy Risk Auditor Certification Practice Test

(ERAC) Energy Risk Auditor Certification Practice Test

ERAC Audit Procedures & Risk Mitigation 3