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. 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
2. 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
3. Which of these does not justify implementing the Basel Accords? → Management of human error
4. What is 'conduct risk' in operational risk management? → The risk of losses from employee misconduct such as insider trading or mis-selling
5. A 'protective put' strategy involves: → Buying put options on a stock you already own to limit downside losses
6. What does Value at Risk (VaR) measure? → The maximum loss not exceeded at a given confidence level over a specified period
7. The 'three lines of defense' model in operational risk management assigns risk management roles as: → Business units, risk and compliance functions, and internal audit
8. Under the Basel standardized approach for credit risk, what risk weight is typically applied to unrated corporate exposures? → 100%
9. Under Basel III, what is the Internal Ratings-Based (IRB) approach used for? → Calculating credit risk capital using bank-estimated risk parameters
10. Interest rate risk may have an impact on → Bond prices and Reinvestment rates
11. Which of these companies doesn't have a financial risk manager? → Food conservation companies
12. 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
13. What else is referred to as a net worth statement → Balance Sheet
14. Which measure captures how much a single position contributes to overall portfolio VaR? → Component VaR
15. What is 'model risk' in the context of operational risk? → The risk of adverse consequences from decisions based on flawed or misused models
16. What is backtesting in the context of VaR models? → Comparing predicted VaR estimates to actual observed losses to validate the model
17. What is 'jump risk' in equity market risk management? → Sudden, discontinuous price movements that cannot be hedged with delta alone
18. What does Loss Given Default (LGD) represent? → The percentage of exposure a lender loses after recovery efforts
19. In a standard interest rate swap, the 'notional principal' refers to: → The reference amount used solely to calculate periodic interest payments
20. What is the 'Greeks' in options risk management? → Sensitivity measures that describe how an option's price changes with market variables
21. It is possible that several borrowers in one country default on their loans is → sovereign risk
22. Which of the following is a primary source of contingent liquidity risk for banks? → Undrawn credit lines and letters of credit that clients may draw upon in stress
23. Which of the following best describes the current exchange rate? → Spot exchange rate
24. After entering a pay-fixed, receive-floating swap on top of floating-rate debt, a company's combined debt is effectively: → Fixed rate
25. The Net Stable Funding Ratio (NSFR) is designed to: → Promote stable medium- and long-term funding relative to asset liquidity needs
26. What is 'concentration risk' in a credit portfolio? → Excessive exposure to a single borrower, sector, or geography
27. Which Greek letter measures the rate of change of delta with respect to the underlying asset price? → Gamma
28. Which of the following is an example of an internal fraud operational risk event? → A rogue trader exceeding authorized position limits to conceal losses
29. A cross-currency swap differs from a plain vanilla interest rate swap primarily because it: → Involves exchange of principal amounts in two different currencies
30. Which of the following does not affect interest rates? → None of the above