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Exam
Question 1. What is a primary driver for the increased importance of risk management in financial services post-crisis? A) Higher profits B) Regulatory reforms and heightened scrutiny C) Lower customer expectations D) Easier access to capital Answer: B Explanation: Regulatory reforms and heightened scrutiny following financial crises have made risk management much more central to financial services operations. Question 2. Which of the following is a key component of an enterprise- wide risk management (ERM) framework?
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A) Product design B) Risk appetite statement C) Marketing strategy D) Sales incentives Answer: B Explanation: A risk appetite statement is a fundamental component of a robust ERM framework, defining the level of risk an organization is willing to accept. Question 3. The integration of ESG factors into operational risk framework involves assessing: A) Only financial risks B) Environmental, Social, and Governance impacts
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Answer: B Explanation: Embedding risk best practices requires continuous improvement and integrating risk awareness into the organizational culture. Question 5. Corporate governance principles originated primarily to: A) Maximize short-term profits B) Protect shareholder interests and ensure effective oversight C) Support marketing campaigns D) Reduce product development costs Answer: B Explanation: Corporate governance principles are designed to protect stakeholders and provide effective oversight of organizational activities.
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Question 6. What does the "three lines of defense" model refer to in risk governance? A) Legal, marketing, and sales departments B) Business units, risk management, and internal audit C) Product, pricing, and promotion D) Customer service, IT, and HR Answer: B Explanation: The three lines of defense are business units (first line), risk management (second line), and internal audit (third line). Question 7. Who is primarily responsible for setting the overall risk appetite of an organization?
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D) Handling payroll Answer: A Explanation: The CRO leads the risk function and provides guidance on risk management to senior management. Question 9. What is a primary responsibility of internal audit in the ORM process? A) Setting business strategy B) Providing independent assurance of risk controls C) Approving all business transactions D) Managing external relationships Answer: B
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Explanation: Internal audit (third line of defense) provides independent assurance that risk controls are effective. Question 10. The risk management process includes which of the following steps? A) Only risk reporting B) Identification, assessment, measurement, monitoring, reporting, and control C) Marketing and sales D) None of the above Answer: B Explanation: The full risk management cycle consists of identification, assessment, measurement, monitoring, reporting, and control.
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B) The maximum risk a firm can absorb given its resources C) The number of risk reports generated D) The speed of risk identification Answer: B Explanation: Risk capacity is the maximum level of risk a firm can absorb, considering its financial and operational resources. Question 13. The risk appetite statement (RAS) should be: A) Vague and broad B) Clear, measurable, and integrated with strategy C) Focused only on compliance D) Ignored in decision-making
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Answer: B Explanation: RAS needs to be specific, quantifiable, and aligned with strategic objectives. Question 14. Effective risk policies and procedures should include: A) Only the scope of the policy B) Scope, exception handling, and accountability C) Only exception handling D) Marketing strategies Answer: B Explanation: Good risk policies outline the scope, procedures for exceptions, and assign clear accountability.
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B) Delegation of all responsibility C) Avoiding risk discussions D) Outsourcing all risk functions Answer: A Explanation: Leadership commitment, or "tone at the top," sets the standard for risk culture throughout the organization. Question 17. Incentive and compensation structures should be designed to: A) Encourage excessive risk-taking B) Align employee behavior with risk appetite C) Ignore risk management objectives D) Focus solely on sales targets
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Answer: B Explanation: Proper incentives align behaviors with the organization’s risk appetite and objectives. Question 18. What is an essential step for implementing an ORM framework? A) Ignoring business unit feedback B) Deploying the framework across all business units and functions C) Limiting it to the risk department only D) None of the above Answer: B Explanation: Successful implementation requires organization-wide adoption and integration.
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B) Identify and quantify high-impact, low-frequency events C) Focus on day-to-day operations D) Ignore external data Answer: B Explanation: Scenario analysis helps assess rare but potentially severe risk events. Question 21. When developing scenarios, external expertise is used to: A) Validate internal data only B) Provide objective insights and benchmark against industry standards C) Replace all internal assessments D) Ignore regulatory requirements
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Answer: B Explanation: External data and expertise enhance the reliability of scenario analysis. Question 22. Risk and Control Self-Assessments (RCSA) are primarily used to: A) Market new products B) Identify inherent and residual risks in business processes C) Improve sales performance D) Track customer satisfaction Answer: B Explanation: RCSA identifies both the existing (inherent) and remaining (residual) risks after controls are applied.
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B) Heat maps C) Financial statements D) Product brochures Answer: B Explanation: Heat maps combine qualitative and quantitative risk assessments for a holistic view. Question 25. Tracking and escalating identified operational risk issues is important because: A) Issues resolve themselves over time B) It ensures timely mitigation and accountability C) It is only required by regulators D) It reduces reporting requirements
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Answer: B Explanation: Timely tracking and escalation enable effective risk resolution. Question 26. New product risk assessment requires: A) Ignoring operational risks B) Assessing risks before product launch C) Only post-launch reviews D) Relying solely on vendor assessments Answer: B Explanation: Assessing operational risks before launching new products helps prevent issues.
