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BANK FINANCIAL MANAGEMENT

1. ____________ risk arises because of uncertainties resulting in adverse variation of profitability or outright
losses.(Financial risk/credit risk/market risk)
2. Strategic risk is a kind of operational risk.(True/False)
3. Portfolio risk is less than the weighted average of individual risks in the portfolio, due to diversification
effect.(true/False)
4. When a bank funds its assets from a pool of composite liabilities, it faces a ______ risk , in addition to credit
and operational risk.(Basis/embedded)
5. When a bank branch sanction a loan, say of Rs.15lac, it faces, liquidity risk, interest rate risk, credit risk,
operational risk.(true/False)
6. Risk mitigation results in reducing downside variability.(True/False)
7. When a bank branch sanctions a loan, say of Rs.15lac, it faces, market risk in addition to other type of
risk.(True/False)
8. Investment in Govt. securities is a______________ risk investment(no/low)
9. While sanctioning a house loan, a customer has been given option to repay the loan before maturity. The
bank is facing__________ risk (embedded/basis)
10. Risk is the uncertainty resulting in adverse outcome.(true/False)
11. Due to uncertain positions, there is impact on the variation in net cash flows.(True/False)
12. Lower variability in net cash flow, is a situation of high risk.(True/False)
13. Higher variability in net cash flows, is a situation of high risk.(True/False)
14. RAROC stands for rating adjusted return on capital.(true/false)
15. RAROC is worked out by netting the effect of risk premium from the gross return.(True/False)
16. Out of two investment opportunities, the investment that has possibility to yield slightly higher return
whether regular or irregular, is preferable to the one that has regular yield.(True/false)
17. One of the key drivers to manage a bank, is to enhance the risk adjusted return on capital.(True/False)
18. Banking book includes advances, deposits and borrowing.(True/False)
19. __________ book includes the assets that are marketable such as Govt. securities or other
securities.(trading/banking)
20. Marking to market system is followed in the context of __________ book(trading book/banking book)
21. In _________ book, the assets are not normally held till maturity, while in the ___________ book, these
generally are held till maturity.(trading, banking/banking, trading)
22. ___________ book is exposed to market risk including liquidation risk, default risk, operational
risk.(trading/banking)
23. ____________ book is exposed to liquidity risk, interest rate risk, credit risk.(trading/banking)
24. ___________ exposures are contingent in nature.(banking book/trading book/off-balance sheet)
25. ____________ is the risk of banks arising from funding long term assets by short term liabilities.(market
risk/liquidity risk/operational risk)
26. __________ risk is defined as the inability of the bank to obtain funds to meet cash outflow
obligations.(liquidity/funding liquidity/operational)
27. _____________ risk arises from the need to replace net outflows due to unanticipated withdrawals/non-
renewal of deposits.(liquidity/funding/operational)
28. ____________ risk is the risk that arises due to crystallization of contingent
liabilities.(funding/liquidity/call)
29. ___________ risk is the risk that arises from the need to compensate for non-receipt of expected inflows of
funds.(funding/call/time/liquidity)
30. The risk that the interest rate of different assets or liabilities may change in different magnitude is called
___________ risk(time/basis/embedded)
31. When non-performance of a counter-party is on account of restrictions imposed by the govt. of the
country, it is called__________.(default risk/counterparty risk/country risk)
32. The risk arising from frauds, failed business process is called______ risk.(market risk/transaction
risk/credit risk)
33. Forex risk, price risk, liquidation risk are part of ___________ risk.(credit/operational/market)
34. Communication risk, documentation risk, compliance risk are part of operational risk.(True/False)
35. The risk that a bank faces due to negative public opinion is called_________ risk.(operational
risk/reputation risk/strategic risk)
36. A bank sanctions loans for various categories of borrowers such as retail, commercial segments in
different geographical regions to reduce risk. This is called _________(risk management/risk
diversification/risk quantification).
37. The risk that the loans of the bank face as total volume of credit of the bank, is called________ risk(credit
risk/default risk/portfolio risk)
38. The process of identifying various risk associated with the risk taking, at the transaction level and its
impact on portfolio, is called , risk___________ (risk measurement/risk identifying/risk quantification).
39. The risk measurement method in which the variation in target variable is measured by changing one
variable, is called________ (sensitivity/volatility/downside potential)
40. The risk measurement method in which the variation in target variable is measured by changing one
variable, is called ___________ (sensitivity/volatility/downside potential)
41. The downside risk has two components i.e. ________ and probability of occurrence.(potential
profits/potential losses/probability of happening)
42. The value at risk (VaR) is the a downside risk measure.(true /False)
43. The risk measures are essentially__________ looking and they estimate possible future
losses.(backward/forward)
44. Risk ________ implies factoring the risks into pricing through capital charge and loss
probabilities.(mitigation/control/pricing)
45. Risk pricing takes into account cost of funds, operating cost, loss probability and capital charge.(True or
False)
46. Banking and financial systems are regulated by the monetary authority of the country.(True/ False)
47. Among others, the goal of regulation of banking system is to improve the health of the banking system
by prescribing prudent guidelines of capital adequacy and asset classification.(True/False)
48. _____________ is the risk of failure of whole banking system. (system risk/systemic risk/ systematic risk)
49. BCBS stands for Basel Committee on Banking system. (True/False)
50. __________ Primarily aimed at putting in place a framework for minimum capital requirement for banks on
the basis of credit and market risk.(Basel-1/Basel-2)
51. As per Basel l, the capital fund comprises of 3 tier i.e. Tierl, Tier ll and Tier lll.(True/False)
52. ____________ is also known as core capital. (Paid up capital/ reserves/Tier l), under Basel l.
53. Supplementary capital, under Basel l means _________(Tier-1/Tier-2/paid up capital)
54. The _______ risk for capital adequacy purposes was included in the year 1998.(credit risk/market
risk/operational risk)
55. BCBS has been vested with legal authority to enforce, Basel I and Basel II guidelines.(True/False)
56. ’International convergence of capital measurement and capital standard – A revised framework’ is the
document relating to ……. (Basel I/Basel II)
57. __________ is more risk sensitive approach to capital standards.(Basel I/Basel II)
58. For credit risk under Basel II, the banks have two approaches namely, standard approach and internal
rating based approach.(True/False)
59. For market risk under Basel II, the banks have three approaches namely standard approach, internal
models method and internal rating based approach.(True/False)
60. For operational risk under Basel II, the banks have only two approaches i.e. basic indicator approach and
advance measurement approach.(True/False)
61. Basel II has three pillars called minimum capital standard, risk management and supervisory
review.(True/False)
62. In credit risk, the _________ is the approach to compute the capital requirement of each exposure directly,
before computing the risk weighted assets.(standard approach/internal rating based approach)
63. ______________ measures the likelihood that the borrower will default over a given time horizon.(exposure
at default/probability of default/loss given default)
64. ______________ measures the proportion of the exposure that will be lost if a default occurs.(exposure at
default/probability at default/loss given default)
65. ____________ measures the amount of facility that is likely to be drawn in the event of a default.(exposure
at default/probability of default/loss given default)
66. ___________ measures the remaining economic maturity of the exposure.(maturity (M)/probability of
default/loss given default)
67. Capital charge for basic indicator approach under operational risk will be _________% of the average gross
income over three years.(9%/12%/25%)
68. Under standardized approach for operational risk, the average gross income shall be segregated
into_______________ business lines.(4/6/8)
69. Under standardized approach for operational risk, the total capital charge = __________ (sum of capital
charges across business lines/15% of average gross income over three years)
70. Pillar 2 (supervisory review process) of Basel II has introduced two critical risk management concepts
i.e. the use of economic capital and enhancement of corporate governance.(True/False)
71. Under supervisory review process there are _________ principles.(2/4/6)
72. Pillar - __________ relating to __________ is designed to complement the other two pillars.(pillar-1,minimum
capital/pillar-2 supervisory review process/pillar-3,market discipline)
73. Market participants will be able to assess the key information about a bank’s risk profile and level of
capitalization through pillar ______ on __________: (pillar-1, minimum capital/pillar-2 supervisory review
process/pillar-3,market discipline)
74. 1998 capital accord took into account only the operational risk and market risk.(True/False)
75. Back testing is done with a view to compare the results of the modal and actual performance.(True/false)
76. Risk of possible loss arising due to default by the borrower to pay his obligation is called
______________________(credit risk/country risk/counterparty risk)
77. Credit risk management process has 4 important element such as risk identification,_____________________
risk measurement and risk monitoring and control.(risk mitigation/ risk diversion)
78. Credit risk management organization normally consists of Board of Directors,________________, credit policy
committee & credit risk management department. (Risk Management Cell/ Risk Management
Committee/ Risk Management Council)
79. Overall responsibility for management of credit risk is that of ___________________(Board of Directors/ Risk
Management Committee/Risk Management Department)
80. Risk Management Committee is a Board level sub-Committee.(True/False)
81. ___________________________ deals with issues relating to credit policy and procedures and to analyze, manage
and control credit risk on a bank-wide basis.(Risk Management Committee/ Credit Policy Committee)
82. There are two components of credit risk(i.e. transaction risk) namely _______________ & _______________
(default risk & credit spread risk/ intrinsic risk & concentration risk)
83. There are two Components of portfolio risk namely_______________________ & _________________ (default risk &
Credit spread risk/intrinsic risk & Concentration risk).
84. When credit rating of the borrower is reduced due to some deterioration and he has not defaulted, such
risk is called: (default risk / credit spread risk / intrinsic risk).
85. The default risk and downgrade risk are relevant for a branch (transaction level): (True / False)
86. Portfolio risk is generally dealt with at Head Office level of a bank.(True / False).
87. When the economy or an industry is not performing well, there is probability of loss to the bank due to
effect on the performance of the individual borrower, which is called ___________________ risk (default risk
/ intrinsic risk / Concentration risk).
88. When a bank extended major part of loans to a particular geographical region or a particular industry,
the bank is said to be facing _______________ risk. (counterparty risk/ intrinsic risk / concentration risk).
89. Diversification of the loan portfolio can take care of __________________risk. (counterparty risk / intrinsic
risk / concentration risk).
90. When risk arises from non-performance of the trading partner of the country concerned, such situation
is called _______________________ risk. (counterparty risk / country risk / concentration risk).
91. When risk arises on account of restrictions imposed by the Govt. of the country concerned, Such risk is
called ____________________risk. (counterparty risk / country risk / concentration risk).
92. Quantification of the risk through estimating expected loan losses is part of risk ________________ (risk
mitigation / risk measurement)
93. ______________________ of a loan account is undertaken with the objective to determine whether the account,
after expiry of a given period, would remain a performing asset. (renewal / credit rating / sanction )
94. A credit rating model differentiates borrowers based on degree of stability in terms of top line ( sales)
and bottom-line(net profit).(True / False)
95. A high profit making company having higher level of uncertainties in revenue generation would be rated
higher than a borrower with a relatively lower profitability but having more stable revenue.(true or
false)
96. Govt. securities are rated high despite the lower return because there is highest stability of revenue
generation.(true or false)
97. ------------- is the change in the rating of borrower over a period of time when rated on the same standard
or model.(Risk mitigation/rating migration)
98. Rating of 2,out of 100 A-rated borrowers of the bank has moved from A to ‘default’. This means there is
2%------- of A-rated borrowers.(default probability/rating migration)
99. When migration pattern of rated borrowers under a particular model is compared with the standard
migration pattern published by rating agencies , this is called ---------------- with market
standards.(mapping/comparing)
100. --------------focuses on estimating the volatility in the value of assets caused by variations in the
quality of assets.(Altman’s Z score/JP Morgan’s CreditMetrics /CreditRisk + of credit risk)
101. ------------- forecasts the probability of a company entering bankruptcy within 12 month period .
(Altman’s Z score/JP Morgan’s CreditMetrics/ Credit Risk+ of credit Swiss)
102. ________________ model is based on actuarial calculation of expected default rates and unexpected
losses from default.26 ________________ focuses on estimating the volatility in the quality of assets. (Altman’s
Z Score / JP Morgan’s CreditMetrics/ Credit Risk+ of credit Swiss)
103. Credit risk control and monitoring is directed both at transaction level and _____________
level.(branch level / head office level / portfolio level ).
104. For an effective credit risk monitoring system, detailed ___________ & _____________ is the backbone.
(MIS & CIS / rating & migration).
105. Credit risk process, risk analysis process, credit audit and loan review are the instrument of credit
risk management at ______________level.(HO level / portfolio level / transaction level)

106. Credit appraisal process, fixation of prudent limits and risk pricing that are taken care of under
credit risk management at __________________level.(HO level / portfolio level / transaction level)

107. Secondary loan trading, securitization and credit audit derivatives are new _____________ to manage
the risk. (tools / products).

108. ________________ is an effective tool for constantly evaluating the quality of loan book and to bring
about qualitative improvements in credit administration. (renewal / loan review mechanism/ credit
grading)

109. ____________________ involves assessment of credit quality, identification of problem loans and
assignment of risk rating. (renewal / loan review mechanism/ credit grading)
110. Review of high value large loan accounts should be undertaken at ___________ intervals.
(quarterly/half-yearly/as per urgency of the review)
111. Risk of loss resulting from inadequate or failed process ,people and systems or from external
events is called -----------------------------------(integrated risk/operational risk)
112. Operational risk has ----------------- important components i.e .processes, people,-------,systems
and external events(4,people/2,failed people)
113. Operational risk exists in almost all transactions and activities in bank.(true/false)
114. Negligence, integrity are the part of the ------------oriented cause of the operational
risk(process/people/technology)
115. Inadequate segregation of duties or lack of management supervision are part of ---------------
oriented cause of operational risk.(process/ people/ technology)
116. Lack of automation , poor design and testing are part of --------- oriented cause of operational risk
.(process/ people/technology)
117. Natural disaster, deteriorated social context, are part of ------------- oriented cause of operational
risk.(process/people/external)
118. Which among the following is not the part of the people oriented causes of operational
risk(product complexity/lack of automation/inadequate segregation of duties/all)
119. Loss arising due to intention to defraud which involves atleast one internal party is -------------
(external fraud/internal fraud)
120. Loss arising out of intention to defraud which involves a 3rd party is ------(external fraud/internal
fraud)
121. Loss arising out of unintentional failure to meet a professional obligation to a specific client , is
classified under -------------(client & business practices/Employment and work place safety practices)
122. For operational risk management, the sound practices for the Management of Operational risk
document is used which has been prepared by --------(Reserve bank of India/Bank for International
settlements)
123. The overall responsibility to manage operational risk is that of the ------------------(operational risk
management committee/Board of directors)
124. Who has the responsibility in a bank to implement ORM framework? (operational risk
management committee/Board of directors)
125. Which of the following is not an approach to quantify the operational risk.(basic indicator
approach/standardized approach/ internal rating approach)
126. As per basic indicator approach for operational risk, the capital charge is equal to ---------------%
of the average annual gross income of ----years. (10%, 3years/15% 3years/15% 2years)
127. Net interest income+ net non-interest income is called --------- for the basic indicator
approach(gross profit/gross income)
128. For implementation of standardized for operational risk management, the banking activities are
divided into ---------------- lines of business.(4/6/8)
129. Capital charge for each business line is calculated by multiplying gross income by a Beta factor
assigned to that business line ,in which approach in operational risk management(basic indicator
approach/standardized approach)
130. .The beta factor for which of the following does not match.(retail banking-12%/payment and
settlement-15%)
131. The beta factor for standardized approach is 12% in case of retail brokerage ,asset management
and ---------------(retail banking/agency services/corporate financing)
132. Estimated probability of occurrence under a Generic Measurement approach is mapped on a
scale of ----------------(3/5/10)
133. Estimated level of operational risk is calculated as=estimated probability of
occurrence*estimated potential financial impact*------------------------------(estimated impact of internal
controls/estimated measurement of operational risk)
134. The mitigation of operational risk basically lies in the --------approach in operational risk
framework(qualitative/quantitative)
135. For operational risk mitigation ,the recognition of insurance mitigation is limited to ---% of the
total operational risk capital charge(10%/20%/30%)
136. The approach that takes into account the knowledge of experienced business managers and risk
management and risk management experts to derive reasoned assessments of plausible severe loss is
called-----(advanced measurement approach/scenario analysis)
137. An approach under which all the risks that are associated with all the activities undertaken by a
bank are taken into account is called-------------(advance measurement approach/integrated risk
management approach)
138. Net effect of all risks may not be sum total of all risks due to ------------------ effect of
risks.(mitigation/diversification)
139. Events based classification of ri8sk causes, was recommended through ------- of Basel
Committee.(2nd consultative paper/3rd consultative paper)
140. Insurance cover is used to mitigate which type of risk out of the followingmarket risk/liquidity
risk/operational risk)