QFC Internal Controls & Risk Assessment 3

Question 1

A risk heat map plots risks on axes representing probability and impact. A risk that falls in the high-probability, high-impact quadrant should primarily be:

Accepted Answer

Prioritized for immediate mitigation

Answer

Risks in the high-probability, high-impact quadrant represent the greatest threat and require immediate, active mitigation strategies.

Question 2

Which internal control principle under COSO requires that management establish structures, reporting lines, and appropriate authorities?

Accepted Answer

Establishes structure, authority, and responsibility

Answer

The principle 'Establishes Structure, Authority, and Responsibility' under the Control Environment component requires management to define organizational structures and authority.

Question 3

In operational risk management, the Loss Distribution Approach (LDA) combines which two data sets to model annual loss distributions?

Accepted Answer

Internal loss data and external loss data

Answer

The LDA combines internal loss data with external loss data (supplemented by scenario analysis) to estimate frequency and severity distributions for operational losses.

Question 4

A trader's P&L consistently falls outside the 99% VaR boundary more than 5 times in 250 trading days. Under Basel backtesting rules, this result falls in the:

Accepted Answer

Red zone

Answer

Under Basel traffic-light backtesting, more than 4 exceptions in 250 days places the model in the red zone, indicating likely model inadequacy.

Question 5

Segregation of duties (SoD) is designed primarily to prevent which type of control failure?

Accepted Answer

A single individual from both executing and recording a transaction

Answer

SoD ensures that no single person has control over all phases of a transaction, reducing the risk that errors or fraud could be committed and concealed by one individual.

(QFC) Quantitative Finance Certification Practice Test

(QFC) Quantitative Finance Certification Practice Test

QFC Internal Controls & Risk Assessment 3