National Institute of

Bank Management

Dashboard  My courses  RSK MGMT  MODULE III: MANAGEMENT OF RISK IN BANK PORTFOLIOS - OPERATIONAL RISK
 EOM III: TEST: 23-12-2023

Started on Saturday, 23 December 2023, 9:15 AM

State Finished
Completed on Saturday, 23 December 2023, 9:51 AM
Time taken 36 mins 37 secs
Grade 57.50 out of 60.00 (96%)

Question 1 Incorrect Mark 0.00 out of 0.50

Which one of the following is not true about Expected Loss for a loan asset

Select one:
a. Can be used to calculated credit spread
b. Can be used to measure provisioning
c. Can be used to determine capital requirements
d. Can be used to set reserve requirement

Question 2 Correct Mark 0.50 out of 0.50

The risk weights in Basel II standardized approach cover

Select one:
a. Neither expected nor unexpected loss
b. Both expected and unexpected loss
c. Expected loss
d. Unexpected loss
Question 3 Correct Mark 0.50 out of 0.50

Which one of the following is true about unexpected loss

Select one:
a. It is the standard deviation of loss above the expected loss
b. It is the standard deviation of expected loss
c. It is the standard deviation of loss
d. It is the standard deviation of loss below the expected loss

Question 4 Correct Mark 0.50 out of 0.50

Which one of the following is not true about unexpected loss of a loan portfolio

Select one:
a. It is the sum total of unexpected losses of individual loans
b. It can be lower than sum of unexpected losses of individual loans
c. It is the sum total of marginal risk contribution of individual loans
d. It covers the diversification effects

Question 5 Correct Mark 0.50 out of 0.50

Which one of the following is a determinant of the average risk contribution of a loan to a
portfolio

Select one:
a. Unexpected loss of loan asset
b. Change in unexpected loss of the loan asset
c. Change in portfolio unexpected loss
d. Expected loss of the loan asset
Question 6 Correct Mark 0.50 out of 0.50

Which one of the following is true regarding the correlation between two loan assets A and B

Select one:
a. Correlation (AB) is unrelated to Correlation (BA)
b. Correlation (AB) is less than Correlation (BA)
c. Correlation (AB) is equal to Correlation (BA)
d. Correlation (AB) is greater than Correlation (BA)

Question 7 Correct Mark 0.50 out of 0.50

Which one of the following has the lowest value for an asset in a loan portfolio

Select one:
a. Its risk contribution
b. Its expected loss
c. Cannot be determined
d. Its unexpected loss

Question 8 Correct Mark 0.50 out of 0.50

Which of the the following is true about default correlation amongst assets in a portfolio

Select one:
a. It decreases when the asset ratings worsen
b. All the given options
c. It remains the same when the asset ratings worsen
d. It increases when the asset ratings worsen
Question 9 Correct Mark 0.50 out of 0.50

Which one of the following is not true about default correlation

Select one:
a. It measures correlation between asset returns
b. It depends upon the distribution of assets in a portfolio
c. It is used to measure economic capital for a portfolio
d. It measures joint default probability of assets

Question 10 Correct Mark 0.50 out of 0.50

When the rating for a loan exposure declines from AAA to AA, the risk weight would

Select one:
a. Undetermined
b. Remain same
c. Increase
d. Decrease

Question 11 Correct Mark 0.50 out of 0.50

Which one of the following is not a policy variable for managing concentration risk in banks

Select one:
a. Exposure to 20 large borrower
b. Substantial exposure limit
c. Limit to group borrower exposures
d. Limit to credit rating
Question 12 Correct Mark 0.50 out of 0.50

A bank must benchmark its minimum capital level to

Select one:
a. Economic capital
b. Neither regulatory nor economic capital
c. Either regulatory or economic capital
d. Regulatory capital

Question 13 Correct Mark 0.50 out of 0.50

Which one of the following shocks does the ALM function not address

Select one:
a. Optionality
b. Interest rate
c. Credit default
d. Liquidity

Question 14 Correct Mark 0.50 out of 0.50

The effect of securitization is to

Select one:
a. Centralization of interest rate and liquidity risk
b. Removal of risk from balance sheet
c. Hedging of balance sheet losses
d. Matching balance sheet assets and liabilities
Question 15 Correct Mark 0.50 out of 0.50

The inability to meet off balance sheet loan commitments and guarantees on demand is
known as

Select one:
a. Asset liquidity risk
b. None of the given options
c. Funding liquidity risk
d. Market liquidity risk

Question 16 Correct Mark 0.50 out of 0.50

Which one of the following is a parameter for measurement of interest rate risk under NII
approach

Select one:
a. All the given options
b. Rate shock
c. Rate sensitive assets
d. Rate sensitive liabilities

Question 17 Correct Mark 0.50 out of 0.50

Asset correlation and probability of default are

Select one:
a. Inversely related
b. Relation not defined
c. Positively related
d. Not correlated
Question 18 Correct Mark 0.50 out of 0.50

Higher the default correlation

Select one:
a. Higher is the expected loss in portfolio
b. Lower is the expected loss in portfolio
c. Higher is the unexpected loss in portfolio
d. Lower is the unexpected loss in portfolio

Question 19 Correct Mark 0.50 out of 0.50

If interest rates decline when repricing gaps are negative, NII will

Select one:
a. Be unpredictable
b. Fall
c. Remain unchanged
d. Rise

Your answer is correct.

Question 20 Correct Mark 0.50 out of 0.50

The ratio of NII to other income may decline due to

Select one:
a. Rise in other income
b. All the given options
c. Credit risk
d. Market risk

Your answer is correct.

Question 21 Correct Mark 1.00 out of 1.00

Unexpected loss (UL) of a loan with LGD volatility will be

Select one:
a. Higher than the UL with LGD certainty
b. Lower than the UL with LGD certainty
c. Equal to UL with LGD certainty
d. Both are not comparable

Question 22 Correct Mark 1.00 out of 1.00

If there is only one default in a corporate pool of 20 assets, the default correlation within
assets using joint default probability formula would be:

Select one:
a. Positive
b. Negative
c. Undefined
d. Zero

Question 23 Correct Mark 1.00 out of 1.00

If the Joint default probability between two borrowers A and B is lower than the product of
their respective individual default probabilities, the default correlation between them would be

Select one:
a. Infinity
b. Negative
c. Zero
d. Positive
Question 24 Correct Mark 1.00 out of 1.00

If PD of a Rs. 100 crore loan is 2% and LGD is 50%, the unexpected loss of the loan would be

Select one:
a. Rs 7 crore
b. Rs 3 crore
c. Rs 1 crore
d. Rs 5 crore

Question 25 Correct Mark 1.00 out of 1.00

If PD of a Rs. 100 crore loan is 2% and LGD is 50%, which one of the following is true

Select one:
a. Unexpected loss is equal to expected loss
b. Unexpected loss is less than expected loss
c. Unexpected loss is greater than expected loss
d. Unexpected loss is dependent on expected loss

Your answer is correct.

Question 26 Correct Mark 1.00 out of 1.00

The concentration of a loan portfolio is a measure of its

Select one:
a. Neither specific nor systematic risk
b. Both specific and systematic risk
c. Specific risk
d. Systematic risk
Question 27 Correct Mark 1.00 out of 1.00

The correlation of a loan portfolio is a measure of its

Select one:
a. Specific risk
b. Neither specific nor systematic risk
c. Systematic risk
d. Both specific and systematic risk

Question 28 Correct Mark 1.00 out of 1.00

The capital multiplier used in the formula for determining economic capital indicates to

Select one:
a. Unexpected loss of the portfolio
b. None of the given options
c. Expected loss of the portfolio
d. Percentile of loss distribution

Question 29 Correct Mark 1.00 out of 1.00

Which one of the following is also called as the Cash Flow Liquidity Risk

Select one:
a. Market liquidity risk
b. Funding liquidity risk
c. None of the given options
d. Asset liquidity risk
Question 30 Correct Mark 1.00 out of 1.00

Which one of the following is a function of fund tranfer pricing mechanism in a bank

Select one:
a. All the given options
b. Determine pricing policies of the business units in line with market prices
c. Divide the total interest earned attributable to various businesses within the bank
d. Transfer liquidity and interest rate risks to the ALM unit

Question 31 Correct Mark 1.00 out of 1.00

In which of the following FTP regimes, branches have an incentive to make longest tenor loans
and take shortest tenor deposits

Select one:
a. Matched maturity method
b. Multiple pool method
c. Split pool method
d. Single pool method

Question 32 Correct Mark 1.00 out of 1.00

Which one of the following derivative contracts are not linear in nature

Select one:
a. Forwards
b. Swaps
c. Options
d. Futures
Question 33 Correct Mark 1.00 out of 1.00

Which one of the following is not a parameter used for estimating operational risk capital
charge under Basel III

Select one:
a. All the given options
b. Gross income
c. Internal loss component
d. Business indicator

Question 34 Correct Mark 1.00 out of 1.00

The risk that arises as a result of imperfect correlation between the indices underlying asset
and liability rates is called as

Select one:
a. Basis risk
b. Yield curve risk
c. Repricing risk
d. Options risk

Question 35 Incorrect Mark 0.00 out of 1.00

For the purpose of operational risk loss data collection, what is the minimum gross loss
threshold that must be recorded as per RBI

Select one:
a. Rs 100000
b. Rs 50000
c. Rs 500000
d. Rs 1000000
Question 36 Correct Mark 1.00 out of 1.00

A near miss event is a operational risk event that

Select one:
a. Leads to subsequent losses at other business lines, but relating to the same operational
risk event
b. Does not lead to a loss
c. Leads to a loss that is completely recovered in a short period
d. Leads to subsequent losses at other time, but relating to the same operational risk
event

Question 37 Correct Mark 1.00 out of 1.00

Truncation bias in operational risk data relates to bias emerging from

Select one:
a. Collection of loss data from banks with certain scale of operations
b. All the given options
c. Collection of loss data above certain thresholds
d. Collection of loss data from public sources only

Your answer is correct.

Question 38 Correct Mark 1.00 out of 1.00

Which of the following is one of the two variables that form the ‘dimensions’ of a risk map?

Select one:
a. Impact
b. Source
c. Category
d. Department
Question 39 Incorrect Mark 0.00 out of 1.00

Which of the following is not an advantage of the Loss-Scenario Model in

Select one:
a. May be useful in identifying the need for recovery planning and crisis
b. May be useful in aggregating scenarios into a complete picture of operational
c. May be useful as they are intuitively attractive and easy to comprehend
d. May be useful in identifying the weaknesses of a particular strategy

Your answer is incorrect.

Question 40 Correct Mark 1.00 out of 1.00

An asset or liability can be rate-sensitive when it

Select one:
a. Resets
b. Pays an instalment
c. Matures
d. All the given options

Your answer is correct.

Question 41 Correct Mark 1.00 out of 1.00

NII approach does not capture

Select one:
a. Yield curve risk
b. Relative impact of rate shocks on all banks
c. Repricing risk
d. Basis risk

Your answer is correct.

Question 42 Correct Mark 1.00 out of 1.00

Interest rate Sensitivity Statements have been amended in 2010 to add buckets

Select one:
a. Upto 1 year
b. Upto 1 month
c. Beyond 5 years
d. Upto 3 year

Your answer is correct.

Question 43 Correct Mark 1.00 out of 1.00

The NII loss from options risk, in a rising rate scenario, may lead to

Select one:
a. Credit risk
b. Liquidity risk
c. Market risk
d. Operational risk

Your answer is correct.

Question 44 Correct Mark 1.00 out of 1.00

The BPLR regime gave rise to

Select one:
a. Basis risk
b. Options risk
c. Yield curve risk
d. Repricing risk

Your answer is correct.

Question 45 Correct Mark 1.00 out of 1.00

Change in NII captures

Select one:
a. Change in reinvestment income
b. Change in market value of liabilities
c. Change in market value of off-balance sheet items
d. Change in market value of assets

Your answer is correct.

Question 46 Correct Mark 1.00 out of 1.00

What type of operational risk losses are best analyzed using scenario analysis

Select one:
a. All the given options
b. Tail losses
c. Expected losses
d. Unexpected losses

Your answer is correct.

Question 47 Correct Mark 1.00 out of 1.00

Key Risk Indicators (KRI) are essentially

Select one:
a. Neither Ex ante nor Ex post information
b. Ex ante information
c. Both Ex ante and Ex post information
d. Ex post information

Your answer is correct.

Question 48 Correct Mark 1.00 out of 1.00

Which one of the following statements is not true about VaR

Select one:
a. The larger the value of the bank’s portfolio, the greater is the VaR
b. The higher the degree of confidence level, the higher is the value of VaR
c. If a one-day 99% VaR is Rs $20 million, then the 10-day 99% VaR is Rs 200 million
d. The higher the volatility of the portfolio, the higher is the value of VaR

Your answer is correct.

Question 49 Correct Mark 1.00 out of 1.00

Customer complaint incidence is an example of which one of the following approaches to

assessing and monitoring operational risk

Select one:
a. Scenario analysis
b. Key Risk Indicator
c. Risk self control assessments
d. Internal loss data

Your answer is correct.

Question 50 Correct Mark 1.00 out of 1.00

Which one of the following is a weakness of VaR

(i) It is a point estimate
(ii) It does not measure event risk
(iii) It is not sub additive
(iv) All the given options

Select one:
a. (i) only
b. (ii) only
c. (iv) only
d. (iii) only

Your answer is correct.

Question 51 Correct Mark 2.00 out of 2.00

If the single correlation in a SME loan pool is 2% and Unexpected Loss of a SME borrower is
10%, the Unexpected Loss Contribution of the borrower would be

Select one:
a. Zero Percent
b. Less than 10 percent
c. Cannot be determined
d. Greater than 10 percent
Question 52 Correct Mark 2.00 out of 2.00

Where banks do not have enough time series data on borrower default, which of the following
can be used to determine default correlation
(i) External rating agency data
(ii) Equity index returns correlations

Select one:
a. (i) only
b. Both (i) and (ii)
c. (ii) only
d. Neither (i) nor (ii)

Question 53 Correct Mark 2.00 out of 2.00

Assume that the borrower is a BB-rated company with probability of default (PD) =2 percent. If
the expected recovery (RR) from collateral in the event of default is 60 percent of principal and
interest, what is the Expected & Unexpected Loss (UL) percentage of the loan?

Select one:
a. EL less than 1%, UL less than 1%
b. EL greater than 1%, UL is greater than 1%
c. EL is less than1%, UL is greater than 1%
d. EL greater than 1%, UL less than 1%

Question 54 Correct Mark 2.00 out of 2.00

If the correlation (corr) is same across assets, with unexpected loss ULi. in a portfolio, then the
marginal risk contribution of an asset in the portfolio would be

Select one:
a. ULi * Sqrt (corr)
b. ULi * corr
c. ULi * (1 - corr)
d. ULi * (1 + corr)
Question 55 Correct Mark 2.00 out of 2.00

Determine the PD in percentage for a portfolio of 100 loans, with 5 loans from a pool of 40 AA
rated loans moving to default and 3 loans from a pool of 60 BBB rated loans moving to default

Select one:
a. 2.0
b. 0.94
c. 9.50
d. 7.50

Question 56 Correct Mark 2.00 out of 2.00

If the joint default probability between two borrowers rated A and BBB is estimated as 0.06%,
and probability of default of A is 0.70% and BBB is 2%; their default correlation is

Select one:
a. 1.29%
b. 2.29%
c. 3.94%
d. 2.94%

Question 57 Correct Mark 2.00 out of 2.00

In a portfolio comprising of five sectors with exposures in the ratio 5 : 2 : 1 : 1 : 1, will have HHI
of

Select one:
a. 0.26
b. 0.53
c. 0.32
d. 0.18
Question 58 Correct Mark 2.00 out of 2.00

The probability of tail events for a bank wishing to achieve 99.98 solvency rating must be less
than

Select one:
a. 0.05%
b. 0.03%
c. 0.04%
d. 0.02%

Question 59 Correct Mark 2.00 out of 2.00

Under the Basel II standardized approach in India, a risk weight of 50% would result in a capital
charge of

Select one:
a. 4.50%
b. 9%
c. 8%
d. 4%

Question 60 Correct Mark 2.00 out of 2.00

A negative repricing gap, in the 1m – 3m bucket, can be reduced by

Select one:
a. Buying a 15-year fixed –rate bond
b. Introducing 3-month deposits
c. Making a floating-rate loan with a 3 month reset date
d. Making a 20-year fixed-rate home loan

Your answer is correct.