Financial Risk Management Cheat Sheet 2026

The 30 highest-yield Financial Risk Management facts, distilled from real exam questions. Print it, save it as a PDF, or study it here — free, no sign-up.

1. Which liquidity risk metric measures the time it would take to liquidate a portfolio under stressed market conditions? → Liquidity-Adjusted VaR (LVaR)
2. A long position in a crude oil futures contract is best described as: → An obligation to buy crude oil at a specified price and date
3. How does the 'Net Stable Funding Ratio' (NSFR) address bank liquidity risk? → It requires banks to fund long-term assets with stable, longer-term funding sources
4. Expected Credit Loss (ECL) under IFRS 9 requires banks to recognize: → Forward-looking 12-month or lifetime credit losses as soon as a loan is originated
5. The 'Greeks' in options risk management — delta, gamma, vega, theta, and rho — measure sensitivity to which respective market factors? → Underlying price, curvature of delta, implied volatility, time decay, interest rates
6. Which of these does not justify implementing the Basel Accords? → Management of human error
7. What is 'conduct risk' in operational risk management? → The risk of losses from employee misconduct such as insider trading or mis-selling
8. A 'protective put' strategy involves: → Buying put options on a stock you already own to limit downside losses
9. What does Value at Risk (VaR) measure? → The maximum loss not exceeded at a given confidence level over a specified period
10. Which regulatory framework introduced the concept of 'Tier 1' and 'Tier 2' capital for banks? → Basel I Accord
11. A bank's Net Stable Funding Ratio (NSFR) is defined as: → Available Stable Funding divided by Required Stable Funding ≥ 100%
12. Which of the following is a key assumption of the Merton structural model of credit risk? → A firm defaults when asset value falls below the face value of debt at maturity
13. The 'three lines of defense' model in operational risk management assigns risk management roles as: → Business units, risk and compliance functions, and internal audit
14. Which risk measure captures the expected loss in the tail of the distribution beyond the VaR threshold? → Expected Shortfall (CVaR)
15. Which of the following is an example of operational risk as defined by Basel II/III? → A rogue trader executes unauthorized trades that result in large losses
16. Under the Basel standardized approach for credit risk, what risk weight is typically applied to unrated corporate exposures? → 100%
17. Under Basel III, what is the Internal Ratings-Based (IRB) approach used for? → Calculating credit risk capital using bank-estimated risk parameters
18. Interest rate risk may have an impact on → Bond prices and Reinvestment rates
19. What is 'counterparty credit risk' (CCR) in the context of OTC derivatives? → The risk that the counterparty to a derivative contract defaults before final settlement
20. Which of these companies doesn't have a financial risk manager? → Food conservation companies
21. An airline enters a long oil futures contract to hedge fuel costs. Oil prices then fall significantly. The outcome is: → The futures position generates a loss that offsets the benefit of lower fuel costs
22. What else is referred to as a net worth statement → Balance Sheet
23. Which measure captures how much a single position contributes to overall portfolio VaR? → Component VaR
24. What is 'model risk' in the context of operational risk? → The risk of adverse consequences from decisions based on flawed or misused models
25. What is backtesting in the context of VaR models? → Comparing predicted VaR estimates to actual observed losses to validate the model
26. What is 'jump risk' in equity market risk management? → Sudden, discontinuous price movements that cannot be hedged with delta alone
27. What does Loss Given Default (LGD) represent? → The percentage of exposure a lender loses after recovery efforts
28. In a standard interest rate swap, the 'notional principal' refers to: → The reference amount used solely to calculate periodic interest payments
29. What is the 'Greeks' in options risk management? → Sensitivity measures that describe how an option's price changes with market variables
30. It is possible that several borrowers in one country default on their loans is → sovereign risk