Financial Risk Management Operational Risk Management 1

Question 1

According to Basel III, operational risk is defined as the risk of loss resulting from:

Accepted Answer

Inadequate or failed internal processes, people, systems, or external events

Answer

Basel defines operational risk as losses from failed or inadequate internal processes, people, and systems, or from external events such as fraud or natural disasters.

Question 2

Which of the following is an example of an internal fraud operational risk event?

Accepted Answer

A rogue trader exceeding authorized position limits to conceal losses

Answer

Rogue trading involves unauthorized positions taken by an internal employee, making it an internal fraud event under Basel's operational risk taxonomy.

Question 3

The 'Standardized Approach' (SA) for operational risk capital under Basel III calculates capital based on:

Accepted Answer

Business Indicator components and an Internal Loss Multiplier

Answer

The Basel III Standardized Approach uses a Business Indicator (BI) and, for large banks, an Internal Loss Multiplier based on historical losses.

Question 4

A Key Risk Indicator (KRI) in operational risk management is best described as:

Accepted Answer

A metric that provides early warning signals of increasing operational risk exposure

Answer

KRIs are forward-looking metrics (e.g., staff turnover rate, system error rates) that signal rising operational risk before losses occur.

Question 5

What is a Risk and Control Self-Assessment (RCSA)?

Accepted Answer

A structured process in which business units identify, assess, and rate their own operational risks and controls

Answer

RCSA engages frontline business units in identifying inherent risks, evaluating control effectiveness, and rating residual risk.

Financial Risk Management Practice Test

Financial Risk Management Practice Test

Financial Risk Management Operational Risk Management 1