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6、The risks that will tend to have high expected losses but relatively low unexpected losses are:

A) high-frequency, high-severity risks. 

B) low-frequency, high-severity risks. 

C) high-frequency, low-severity risks. 

D) low-frequency, low-severity risks.

nayizhenfeng

 

The correct answer is C

 

Data availability and frequent occurrence make the losses associated with high-frequency, low-severity risks the most predictable of operational risks.

nayizhenfeng

 

 7、The measure of operational risk in top-down factor models is:

A) R2.

B) operating leverage.

C) estimated factor coefficient.

D) residual variance.

nayizhenfeng

 

The correct answer is D

 

factor model explains the variation in the dependent variable (e.g., stock returns, revenue, or expenses) with macroeconomic factors through regression analysis. The R² measures the proportion of variation explained by the factors. Operational risk is the idiosyncratic variation left unexplained by the factors, or , called residual variance. Coefficient estimates measure the sensitivity of the operating variable to changes in the associated macroeconomic factor. Operating leverage is the change in variable costs for a given change in total assets. A measure of operational risk is unexpected changes in operating leverage.

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8、Sometimes the debate regarding operational risk focuses more on how to properly define it, rather than how to manage it. Operational risk is commonly defined as any risk that is not classified as:

A) risk-adjusted. 
 
B) an indirect loss. 
 
C) market or credit risk. 
 
D) a direct loss. 

nayizhenfeng

The correct answer is C

There is no agreed upon central definition of operational risk. However, a standard or common definition would be any risk not characterized as market or credit risk. There are many definitions, thus the importance of BIS (Bank of International Settlement) having a standardized definition of operational risk.

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9、All of the following are components of an effective operational risk management system EXCEPT:

A) calculating and executing accurate settlement payments.
 
B) processing transactions.
 
C) projecting default probabilities for counterparties based upon historical experience. 
 
D) collecting data effectively.

nayizhenfeng

The correct answer is C

Projecting default probabilities would address credit risk, not operational risk.

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10、Quantifying operational risk is difficult because:

A) the variance of the market is difficult to compute.
 
B) there are no well-defined procedures or methods.
 
C) the covariance with the market portfolio is difficult to compute.
 
D) the time period needed for measurement is very long.

nayizhenfeng

The correct answer is B

Operational risk management is difficult to quantify because there are no well-defined procedures or methods. Other choices are applicable for measuring beta or systematic risk of equity.