nayizhenfeng

11、Operational risk is defined as all of the following EXCEPT:

A) risk of breakdown in normal operations.
 
B) risk of a swap counterparty not fulfilling their obligation.
 
C) financial risk that is not caused by market risk.
 
D) risk of fraud.

nayizhenfeng

The correct answer is B

Risk of a swap counterparty defaulting is called as credit risk. All of the other choices are examples of operational risk.

nayizhenfeng

12、Operational risk sources for a bank include all of the following EXCEPT:

A) employee misappropriation.
 
B) non-adherence to policy.
 
C) default on loans obtained by submitting false documents.
 
D) absence of standards or policies.

nayizhenfeng

The correct answer is C

Default by customer is part of credit risk irrespective of whether the documents were correct or not.

nayizhenfeng

13、Operational risk is defined as all of the following EXCEPT:

A) risk of rate decrease for a utility.
 
B) financial risk that is not caused by market risk.
 
C) risk of breakdown in normal operations.
 
D) risk of inefficient or insufficient systems. 

nayizhenfeng

The correct answer is A

Operational risk is risk of losses from failed systems, processes, and people. Risk of rate decrease for a utility is part of market risk.

nayizhenfeng

14、Operational risk is all risk that is NOT:

A) credit or market risk.
 
B) exchange rate or interest rate risk.
 
C) credit or interest rate risk.
 
D) exchange rate or credit risk. 

nayizhenfeng

The correct answer is A

Operational risk is also defined as the residual risk – all risk that is not credit or market risk.

nayizhenfeng

15、Operational risk is most poorly defined because:

A) the definition of human risk changes periodically.
 
B) it is a component of overall market risk.
 
C) it is difficult to measure accurately.
 
D) it is poorly correlated with exchange rate risk. 

nayizhenfeng

The correct answer is C

Operational risk is the most poorly defined component of a firm’s overall risk because among other things, it is difficult to measure accurately. The human risk component of operational risk is well defined but is also difficult to measure. Operational risk is not a component of market risk and correlation with exchange rate risk is irrelevant.