Financial Risk Management Operational Risk Management 3

Question 1

What is 'conduct risk' in operational risk management?

Accepted Answer

The risk of losses from employee misconduct such as insider trading or mis-selling

Answer

Risks arising from how the organization conducts its merger and acquisition activities

Answer

Risk from poor execution of trades due to inadequate trading systems

Answer

Regulatory risk from non-compliance with anti-money laundering rules

Question 2

Operational risk appetite is best described as:

Accepted Answer

The level and type of operational risk a firm is willing to accept in pursuit of its strategy

Answer

The maximum regulatory capital allocated to operational risk losses

Answer

A quantitative threshold that triggers automatic escalation to the board

Answer

The percentage of gross income reserved for operational loss provisions

Question 3

Which of the following best describes a 'near-miss' in operational risk management?

Accepted Answer

An event that could have caused a loss but did not due to luck or effective controls

Answer

A loss event that narrowly stayed within approved risk tolerance limits

Answer

A credit loss that was classified as operational due to process failure

Answer

A financial crime that was detected before prosecution

Question 4

When a bank outsources payment processing to a third-party vendor, the operational risk:

Accepted Answer

Remains with the bank, which must manage vendor risk through oversight

Answer

Is eliminated because the vendor is now responsible for losses

Answer

Transfers to the vendor's regulators under supervisory equivalence rules

Answer

Is reduced proportionally to the vendor's own capital adequacy ratio

Question 5

The 'loss data collection' process in operational risk management refers to:

Accepted Answer

Systematically recording internal and external operational loss events for capital modeling

Answer

Collecting P&L data from trading desks for market risk reporting

Answer

Gathering loan default data from credit bureaus for underwriting

Answer

Compiling customer complaint data for regulatory reporting

Question 6

What does 'operational resilience' mean for a financial institution?

Accepted Answer

The capacity to prevent, adapt to, and recover from operational disruptions to critical services

Answer

The ability to absorb credit losses without reducing dividend payments

Answer

Maintaining operational risk capital above the regulatory minimum at all times

Answer

The redundancy built into trading systems to prevent market risk losses