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Question 1

Under the internal ratings based approach for risk weighted assets, for which of the following parameters must each institution make internal estimates (as opposed to relying upon values determined by a national supervisor):

Options :

A : Probability of default

B : Effective maturity

C : Loss given default

D : Exposure at default

Answer: A

Question 2

Which of the following is a cause ofmodel risk in risk management?

Options :

A : Programming errors

B : Misspecification of the model

C : Incorrect parameter estimation

D : All of the above

Answer: D

Question 3

Which of the following is true in relation to the application of Extreme Value Theory when applied to

operational risk measurement?

I. EVT focuses on extreme losses that are generally not covered by standard distribution assumptions

II. EVT considers the distribution of losses in the tails

III. The Peaks-over-thresholds (POT) and the generalized Pareto distributions are used to model extreme value

distributions

IV. EVT is concerned with average losses beyond a given level of confidence

Options :

A : I and IV

B : II and III

C : I, II and III

D : I, II and IV

Answer: C

Question 4

The risk that a counterparty fails to deliver its obligation upon settlement while having received the leg owed

to it is called:

Options :

A : Pre-settlement risk

B : Credit risk

C : Replacement risk

D : Settlement risk

Answer: D

Question 5

The frequency distribution for operational risk loss events can be modeled by which of the following

distributions:

I. The binomial distribution

II. The Poisson distribution

III. The negative binomial distribution

IV. The omega distribution

Options :

A : I, II and III

B : I and III

C : I, III and IV

D : I, II, III and IV

Answer: A