Question 1

Which of the following statements are true:

I.Top down approaches help focus management attention on the frequency and severity of loss events, while

bottom up approaches do not.

II. Top down approaches rely upon high level data while bottom up approaches need firm specific risk data to

estimate risk.

III. Scenario analysis can help capture both qualitative and quantitative dimensions of operational risk.

Options :

A : III only

B : II and III

C : I only

D : II only

Answer: B

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 decisions need to be made as part of laying down a system for calculating VaR:

I. The confidence level and horizon

II. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation

III. Whether the VaR is to be disclosed in the quarterly financial statements

IV. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10

days

Options :

A : I and III

B : II and IV

C : I, II and IV

D : All of the above

Answer: C

Question 4

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 5

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

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