CBA Risk Management 1

Question 1

What is the primary objective of risk management in banking?

Accepted Answer

To minimize potential losses and ensure stability

Answer

Risk management aims to identify, assess, and mitigate potential threats that could affect a bank's financial stability and operations.

Question 2

Which of the following is considered a market risk?

Accepted Answer

Change in interest rates

Answer

Market risk arises from fluctuations in market variables such as interest rates, exchange rates, and stock prices.

Question 3

What is the role of stress testing in risk management?

Accepted Answer

To evaluate resilience under adverse scenarios

Answer

Stress testing evaluates how a bank would perform under extreme but plausible adverse conditions, helping to prepare and plan.

Question 4

Which type of risk is associated with borrower default?

Accepted Answer

Credit risk

Answer

Credit risk refers to the possibility that a borrower may fail to fulfill financial obligations, impacting the lender's earnings.

Question 5

How does diversification help in risk management?

Accepted Answer

Reduces risk by spreading exposure

Answer

Diversification spreads investments across various assets, reducing exposure to any single source of risk.

(CBA) Certified Bank Auditor Practice Test