BFM-b risk management BY Neeraj Agnihotri

1) Which of following documents does not contains Zero risk.

a) Investments in shares
b) Investment in bonds and debentures
c) Investment in term deposit
d) Investment in government bonds
e) Non of these
Ans:a
2. if daily volatility of a stock is 2.5% what will be fourthnightly
volatility.
a) 9.675
b) 37.5
c) 6
d) .166
e) 13.69
ans: a

3. Risk can be mitigate through..
a) Crystilization
b) Diversification
c) Portfolio risk
d) b & c
ans : d (bfm-179)

4. calculate standard deviation of business b
Cash flow 01 yr 02 yr 03 yr 04 yr 05 yr
Business b 3 8 1 6 4
a) 22
b) 4.40
c) 2.70
d) .61
Ans : b formula root of total (x-Xmean) square by n-i
5. The risk arises due to crystallization of contingent liabilities.
a) funding risk
b) time risk
c) call risk
d) gap or mismatch risk
e) basis risk
ans: c
a) funding risk- due unexpected outflow of fund
b) time risk -non receipt of excepted in flows
d) gap or mismatch risk-holding assets & liabilities, off the bal sheet items
with different principal,maturity or repricing dates.
e) basis risk-interest rate of different assets,liabilities & off the bal sheet
items may change in different magnitude
6. In a floating interest scenario, bank may price their assets and
liabilities based on different benchkmarks, pick up the odd one
a) Treasury bills yield
b) fixed deposit rates
c) call money rates
d) forward rates
e) MIBOR
ans: d (BFM_page 189)

7. Yields curve risk is the aries with respect to different maturity sectors,
is a type of a
a) Liquidity risk
b) Interest rate risk
c) Basis risk
d) market risk
e) deafault or credit risk
ans: c
8. Risk weighted assets for credit of a bank is basically a five stage process ,
which one is the third stage.
a)Determining Adjusted Exposure
b) determining applicable risk weight
c) determining RWA for the exposure
d) determining allowable reduction
e) consolidation of RWAs of all exposures
ans:b
a)Determining Adjusted Exposure-I
b) determining applicable risk weight-III
c) determining RWA for the exposure-iv
d) determining allowable reduction-ii
e) consolidation of RWAs of all exposures-V
9. Market value of a portfolio varies with stress testing techniques. Stress
testing covers many different techniques, find out which one specifies the shocks
that might plausibly affect a number of market risk factor simultaneously if an
extreme, but possible, event occurs.
a) simple sensitivity test
b) scenario analysis
c) Maximum loss
d) extreme value theory
ans : b

10. credit events are ISDA defined credit event and includes events .
Pick up odd one
a) Bankruptcy
b) Obligation acceleration
c) Obligation default
d) Non performing assets
e) Failure to pay
f) Repudiation/moratorium
g) Restructuring
Ans: d (BFM-176)

11. Pillar II Supervisory Review consists of
A) Evaluate Risk Assessment
B) Ensure Soundness and Integrity of Banks internal
process to assess the Capital Adequacy
C) Ensure maintenance of maximum capital with
PCA for shortfall
D) Prescribe differential Capital, where necessary i.e.
where the internal process are slack.
E) All of these.
Ans: c not maximum it is minimum
12. Pillar III Market Discipline consists of except
one.
A) Enhance disclosures
B) Core disclosures and Supplementary disclosures
C)Review Market ups and down
d)Timely at least semi annual disclosures.
Ans: c
13. Which capital is call supplementary capitl.
a) Tier-i
b) tier-ii
c) tieir-iii
d) non of these
rt ans is b, tier -I is core capital

14. Standardized Approach allows banks to measure Credit Risk
in a Standardized manner based on

a) Internal Rating Based (IRB)
b) Export Credit Agency (ECA)
c) Risk Weighted Assets
d) External Credit Assessment.
Ans: d
a) IRB approach to measurement of capital requirement for
credit risk,
b)For the purpose of Credit Rating of Sovereigns, the Country
scores of Export Credit Agency (ECA) may be recognized.
c)Risk Weighted Assets are derived from capital charge
computation.
15. The criteria required for Credit Assessment by External
Credit Assessment Institutions (ECAI) are all except one..
A) Objectivity
B) Independence
C) International Access
D) Discipline
E) Transparency
F) Disclosure
G) Resources
H) Credibility.
Ans:D
16. Under Standard Approach retail and SME exposures attract
a uniform Risk weightage of .
a) 50%
b)75%.
c) 80%
d) 85%
e) 100%
ans: b

17. On the basis of the risk weightage pick up the odd one.
a)Under Standard Approach retail and SME exposures attract a
uniform Risk weightage of ..75%
b) exposure to sovereign were assigned a Risk Weight of 0%,
claims against Banks 20% and advances to corporates, risk
weights under basel-I accort.
c)) Lending fully secured by mortgage on residential property
will have a Risk Weightage of 35%.
d) The Loans secured by commercial property will have 100%
Risk Weightage.
e) all correct

rt ans : e

19. Which statement is not correct about IRB approach
a) IRB approach to measurement of capital requirement for
credit risk,
b) IRB Approach the banks internal assessment of key risk
parameters serves as a primary input to capital
computation.
c) IRB Approach computes the capital requirement of
each exposure directly.
d) IRB Approaches depend upon four parameters viz,
PD, LGD, EAD and effective management
e) Under IRB Approach Banks need
categoriesas: A)Corporates B) Sovereigns C) Banks D)
Retail E) Equity.
f) Internal Rating Based (IRB) Approach has further two
options Foundation Approach and Advanced IRB
Approach.
g) All correct.
Ans: g allcorrect

20. The Market Risk positions that require Capital Charge
are
A) Interest rate related Instruments in Trading Book
B) Equities in Trading Book
C) Foreign Exchange open positions through out the Bank.
d) a & c
e) All of these
ans: e

21. Under Standardized Approach Banks activities
are divided into eight business lines. They are pick up odd
one.
1) Corporate Finance2) Trading & Sales 3) Payments
& settlements 4) Commercial Banking 5) Agency services
6) corporate banking 7) Retail Brokerage and 8)
Assessment Management.
Ans: 6 rt option is retail banking
22. Credit Risk includes ..
A) Stress tests under IRB Approach
B) Definition of default
C) Residual Risk
D) Credit concentration Risk.
e) all of these
ans: e

23. The disclosures does not describe.
a)Pillar III should be made at least on semi annual
basis subject to some exceptions.
b). Qualitative disclosures such as policies, systems
definitions may be made on annual basis.
c). Critical information such as Tier I capital, capital
ratios and other components may be published on a
quarterly basis.
d). Banks should have a formal disclosure policy
approved by RBI.
e). Pillar III prescribes qualitative and quantitative
disclosure under 13 areas.
Ans: d -- policy approaved by board of directors


24. Zero risk is not having which of the following features
a) There will be no variation in net cash flow
b) Return on investment would be higher
c) low return on investment
d) all of these
ans :b
25. From the operational risk management point of view banking
business lines have been grouped in how many major heads .
a) 4
b) 8
c) 5
d) 2
ans: 8
26. When return on business is worked out by netting the risk in business
it is called.
a) return on investment
b) risk netted return on equity
c) risk adjusted return on investment
d) risk based system
ans: c
27. Banking books does not include which of the following.
a) all deposit and loans
b) all borrowings
c) capital
d) all of these
e) non of these
ans: c
28. where banks have more earnings assets than paying liabilities which
type of risk arises.
a) liquidity
b) operational
c) Interest rate
d) market
ans: c
29. Trading book includes ..
a) all assets
b) All liabilities
c) All marketable assets
d) All long term liabilities
ans : c
30 which of the following derivatives are the off the bal sheet
exposure
a) Swaps b) futures c) forward contracts d) options
A ) a to d
B) ab& d
C) c only
D) a & c only
Ans : A
31. which of the following is the liquidity risk.
a) time risk
b) call risk
c) price risk
d) funding risk
ans: c
32. Premature payment of a term loan will result which type of
following risk
a) Yield cureve risk
b) Embedded option curev risk
c) mismatch risk
d) basis risk
ans: b
33. portfolio risk is called the risk at
a) branch level
b) Regional/Zonal level
c) aggregated level
d) Non of these
ans; c
34.In risk measurement the parameter that is used to capture
deviation of a target variable due to unit movement of a single market
parameter say 1% change in interest rate is called.
a) Downside potential
b) Volatility
c) Sensitivity
d) mitigation
Ans: c
I
35. which was the immediate cause which prompted G-10 countries
to from the basel committee on th banking supervisions.
a) Dergulation
b) Competition
c) Herstatt incident
d) Globlization
ans; c
36 who has the overall responsibilities for management of risks.
a) Risk management committee
b) Assets liability management committee
c) Board of officerd
d) RBI
Ans: c
37. Approaved market risk limits for factor sensitivities and value
at risk are duly set by which authority
a) Risk policy committee
b) Bpoard of directors
c) ALCO
d) Board of officers
e) IMF
ans: a