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RSK2602 (Fundamentals of Operational and Financial Risk)
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Questions and answersIndicate the correct statement with regard to risk and risk management:
1. Risk management should be focused on the upside of possible risk events.
2. A risk event with a high probability of occurring is considered as high risk
event
3. Risk management should be focussed on loss preventing measures.
4. Risk should primarily be view as a negative event
Risk management should be focussed on both the downside and upside of possible
risk event. A risk event with a high probability of occurring is considered a high risk
event. There are two side to risk; the one side tries to prevent a loss or if it occur
minimising is wile the other side takes a risk with the aim of making a profit. Risk
management should be focused on both risks and opportunities. In the light of this,
risk should be viewed from both a positive and negative perspective.
Option contracts are used…..
1. Mainly as anticipatory hedges
2. To hedge against operational risk
3. To hedge against price changes in commodities
4. To finance financial risks
Option contracts are used to hedge against price changes in commodities. Forward
contracts are mainly used as anticipatory hedges. Hedging is used to manage
financial risk and operational risks are not categorised as financial risk. Option
contracts are derivatives, which serve a valuable purpose in providing a means to
manage financial risks, by transferring undesired risk, at a price to another party who
either want to assume the risk or have other offsetting risks.
Derivatives risk arises from…..
1. The failure of customers to pay back loans
2. Hedging activities
3. The decrease in the value of financial portfolios due to market movements
4. The decrease in the value of financial portfolios due to market movements
5. Fluctuations in exchange rates
Derivative risk arises from hedging activities or speculation in the market. Credit risk
arises from the failure of customers to pay back loans. Market risk arises from the
,decrease in the value of financial portfolios due to market movements. Exchange
rate risk arises from fluctuations in exchange rates.
Derivatives aims to over the following types of risk:
a. Prices of commodities
b. Foreign exchange rates
c. Equity
d. Interest rates
1. A, b, c, d
2. A, b, c
3. B, c
4. C, d
Derivatives aim to cover risks associated with prices of commodities, foreign
exchange rates, equity and interest rates.
Credit risk comprises of:
a. Default risk
b. Recovery risk
c. External risk
d. Exposure risk
1. A, b, c
2. A, b, d
3. A, c, d
4. A, b, c, d
Credit risk comprises or default risk, recovery risk and exposure risk.
According to the Basel Committee, 2003, operational risk results from….
a. Any non-financial risk exposure
b. Inadequate and failed internal processes
c. Failures caused by people and systems
d. External events
1. A, b, c, d
2. A, b, c
3. B, c, d
4. A, c
,According to the Basel Committee, 2003, operational risk results from inadequate
and failed internal processes, failures caused by people and systems and external
events.
7 Non-financial risk include amongst other:
a. Country risks
b. Strategic risks
c. Reputational risk
d. Operational risk
1. A, b, c, d
2. A, b, c
3. A, c, d
4. B, c, d
Non-financial risk include amongst others, strategic risk, reputational risk and
operational risk. Country risk is considered a financial risk.
An organization with a conservative approach towards risk has a(n) ……. attitude
towards risk.
1. Indifferent
2. Risk-taking
3. Risk-seeking
4. Risk-averse
An organization with a conservative approach towards risk has a risk-averse attitude
towards risk.
The key drivers that increase the risk profiles of organisations are amongst others:
a. Less vigilant regulatory environment
b. Increased focused on governance.
c. Globalisation
d. More sophisticated consumers.
1. A, d
2. B, c, ,d
3. B, c
4. A, b, c, d
, They key drivers that increased the risk profiles of organisation are amongst other,
more vigilant regulatory environment, increased focus on governance, globalisation
and more sophisticated consumers.
The top-down approach to the establishment of an operational risk management
function….
1. Defines the operational risk categories
2. Is the preferred method for the actual management of operational risk
3. Identify risk exposures
4. Involves all employees throughout the organisation
The top-down approach to the establishment of an operational risk management
function defines the operational risk categories. The bottom-up approach is the
preferred method for the actual management of operational risk, the identification
of risk and involves all employees throughout the organisation.
The three pillar of operational risk management and corporate governance in terms
of the new Basel cord are….
1. Compliance, supervision and reporting
2. Strategic planning, supervision and reporting
3. Regulatory capital requirements, supervision and market discipline
4. Risk identification, assessment and control
The three pillars of operational risk management and corporate governance in term
of the new Basel Accord are regulatory capital requirements, supervision and market
disciple.
Corporate governance is defined as …
1. A prescribed set of rules to define the relationships between an organisation’s
management, its board, its shareholders and stakeholders
2. The concern of holding a balance between economic and social goals and
between individual and communal goals
3. The practice by which organisations are managed and controlled
4. The alignment of the interests of individuals, corporations and the community
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