Financial Risk Management Operational Risk Management 3

Question 1

What is 'conduct risk' in operational risk management?

Accepted Answer

The risk of losses from employee misconduct such as insider trading or mis-selling

Answer

Conduct risk relates to how a firm and its employees behave toward customers and markets, including mis-selling, market manipulation, and conflicts of interest.

Question 2

Operational risk appetite is best described as:

Accepted Answer

The level and type of operational risk a firm is willing to accept in pursuit of its strategy

Answer

Risk appetite defines the acceptable boundaries of operational risk-taking aligned with the firm's strategic goals and stakeholder expectations.

Question 3

Which of the following best describes a 'near-miss' in operational risk management?

Accepted Answer

An event that could have caused a loss but did not due to luck or effective controls

Answer

Near-misses are events where a potential operational loss was averted; capturing them provides valuable insight into control weaknesses without waiting for actual losses.

Question 4

When a bank outsources payment processing to a third-party vendor, the operational risk:

Accepted Answer

Remains with the bank, which must manage vendor risk through oversight

Answer

Outsourcing transfers the activity but not the accountability; the bank retains responsibility and must perform ongoing third-party risk management.

Question 5

The 'loss data collection' process in operational risk management refers to:

Accepted Answer

Systematically recording internal and external operational loss events for capital modeling

Answer

Loss data collection maintains a database of internal operational losses and supplements it with external consortium data to build the loss distribution for capital modeling.

Financial Risk Management Practice Test

Financial Risk Management Practice Test

Financial Risk Management Operational Risk Management 3