FRM FRM Operational Risk

Question 1

How does Basel II define operational risk?

Accepted Answer

The risk of loss resulting from inadequate or failed internal processes, people, systems, or external events

Answer

The risk of loss from unexpected changes in interest rates and market prices

Answer

The risk of financial loss from counterparty default on an obligation

Answer

The risk that liquidity is insufficient to meet short-term obligations

Question 2

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

Accepted Answer

A rogue trader concealing losses through unauthorized transactions

Answer

A data center outage caused by a hurricane

Answer

A vendor failing to deliver outsourced processing on time

Answer

A regulatory fine for miscalculating capital ratios

Question 3

Under the Basel II Basic Indicator Approach (BIA) for operational risk capital, the capital charge equals:

Accepted Answer

15% of the average positive annual gross income over the past three years

Answer

12% of total risk-weighted assets across all business lines

Answer

The 99.9% VaR of operational losses estimated from internal data

Answer

8% of total credit and market risk capital requirements

Question 4

What is the key advantage of the Advanced Measurement Approach (AMA) for operational risk capital over the Basic Indicator Approach?

Accepted Answer

It allows banks to use internal loss data and models to calculate capital, potentially reducing the capital requirement

Answer

It eliminates the need to collect external operational loss data

Answer

It requires less regulatory approval and oversight than simpler approaches

Answer

It uses a fixed percentage of gross income, providing predictable capital charges

Question 5

What does 'Key Risk Indicator' (KRI) measure in an operational risk framework?

Accepted Answer

A metric that signals changes in the level of operational risk exposure before losses materialize

Answer

The dollar amount of operational losses recorded in a given reporting period

Answer

The capital buffer held against the highest-severity operational risk scenarios

Answer

The frequency of audit findings related to operational control failures

Question 6

Which of the following best describes 'scenario analysis' in operational risk management?

Accepted Answer

A structured process where experts estimate the likelihood and impact of potential severe but plausible operational loss events

Answer

A backtesting exercise comparing modeled losses to historical loss data

Answer

A real-time monitoring system that flags threshold breaches in KRIs

Answer

A regulatory examination of a bank's internal controls and audit findings