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Started on Friday, 9 June 2017, 01:07 AM Completed on Friday, 9 June 2017, 01:07 AM Time taken (^) 23 secs Marks (^) 3.00/7.
Grade 42.86 out of a maximum of 100.
Question 1
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Question text Which one of the following approaches to measure operational risk is NOT used only for a bottom-up approach?
Select one:
a. Multi-factor models b. Causal networks c. Reliability analysis d. Connectivity matrix
Feedback The correct answer is A Multi-factor models. Bottom-up approaches analyze operational risk from the perspective of the business units that make up the entity’s output. Causal networks, connectivity matrixes, and reliability analysis are part of the process approach used to estimate the operational risk of a business unit. Multi-factor models can be used in a top-down approach, particularly for publicly traded companies.
The correct answer is: Multi-factor models.
Question 2
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Question text Which of the following is a weakness of the top-down approach to measuring operational risk?
Select one:
a. It fails to consider historical information b. You cannot use earnings volatility as an indicator of risk potential in this approach c. It is based on the specific mapping of business units, and not the overall organization d. Information on specific sources of risk is not provided
Feedback The correct answer is C Information on specific sources of risk is not provided. The top-down approach does not provide information on specific sources of risk. It levies an overall cost of operational risk to the entire firm.
The correct answer is: It is based on the specific mapping of business units, and not the overall organization.
Question 3
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Question text There are several aspects to a top-down approach to operational risk measurement', which of the following would NOT be a common top-down quantitative approach focus
Select one:
a. Capital asset pricing model (CAPM). b. Risk identification. c. Earnings volatility. d. Parametric method.
Feedback The correct answer is B Risk identification.
The correct answer is: Risk identification..
Question 4
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Question text
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Question text What are the main advantages of using external loss databases?
Select one:
a. Access to a wider pool of data b. Potential access to competitors’ data c. Access to well-structured data d. Access to regulation-compliant data
Feedback The correct answer is A Access to a wider pool of data Data in external databases are edited so that names and other means of identification of the origin are deleted. Moreover, these databases are not designed for mutual spying, but for common progress. Every institution should design and structure these databases at the outset so that they can stand the test of time as well as external databases. A badly structured internal database is likely to be a costly and useless exercise. Internal databases should be, at the outset, regulation-compliant, as regulation is flexible enough to allow tools that are compliant as well as internally useful. For high-impact low- frequency data, internal data are likely to be too succinct. The collated data of several institutions are likely to be a much better guide to the future.
The correct answer is: Access to a wider pool of data.
Question 7
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Question text When used to protect against catastrophic risks, Insurance:
Select one:
a. Reduces the need for capital by more than 50% b. Transforms catastrophic risk into counterparty risk c. Is always too expensive, as actuaries price to a certain return for the insurance companies d. Eliminates default risk
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The correct answer is C Is always too expensive, as actuaries price to a certain return for the insurance companies Insurance is a way to transform a more esoteric and less measurable risk into something more widely understood like counterparty risk.
The correct answer is: Is always too expensive, as actuaries price to a certain return for the insurance companies.
