FA Risk Management and Assessment 3

Question 1

What is concentration risk in a financial portfolio?

Accepted Answer

Over-exposure to a single asset, sector, or counterparty

Answer

Excessive volatility in derivative instruments

Answer

Risk of regulatory fines for non-compliance

Answer

Currency risk in cross-border transactions

Question 2

What does 'stress testing' a financial model involve?

Accepted Answer

Subjecting the model to extreme adverse scenarios to evaluate resilience

Answer

Running the model under normal operating conditions to verify accuracy

Answer

Testing the model's calculation speed and efficiency

Answer

Verifying data inputs against audited financial statements

Question 3

Counterparty risk is most relevant in which type of financial transaction?

Accepted Answer

Over-the-counter (OTC) derivatives contracts

Answer

Purchasing government bonds

Answer

Investing in mutual funds

Answer

Buying publicly traded equities

Question 4

Which regulatory framework introduced stress testing requirements for large US financial institutions after the 2008 crisis?

Accepted Answer

Dodd-Frank Wall Street Reform and Consumer Protection Act

Answer

Sarbanes-Oxley Act (SOX)

Answer

Gramm-Leach-Bliley Act

Answer

Securities Exchange Act of 1934

Question 5

What is the purpose of a risk register in financial risk management?

Accepted Answer

To document identified risks, their likelihood, impact, and mitigation plans

Answer

To record all completed financial transactions

Answer

To track employee performance related to risk taking

Answer

To report risks to external auditors only

Question 6

Systematic risk in a portfolio cannot be reduced by:

Accepted Answer

Diversification across uncorrelated assets

Answer

Choosing high-quality bonds

Answer

Using derivatives to hedge positions

Answer

Increasing cash holdings