1. Capital+Reserves-Fictitious assets and Intangible assets
2. Capital+reserves
3. Capital+Reserves- Intangible assets
4. Capital+Reserves+Fictitious assets – Intangible assets
5. None of the above
Option “1” is correct. Tangible net worth is the sum total of one’s tangible assets (those that can be physically held or converted to cash) minus one’s total debts. The formula to determine your tangible net worth is: Total Assets – Total Liabilities – Intangible Assets = Tangible Net Worth.
2. Rearrange the Steps in RMF in the correct order (ascending order).
1) Authorization of Information System
2)Assessment of Security Controls
3)Categorization of Information Systems.
4)Implementation of Security Controls
5)Selection of Security Controls
6)Monitoring All Security Controls
Option “2” is correct. The correct sequence is as follows: 1. Step 1: Categorization of Information System 2. Step 2: Selection of Security Controls 3. Step 3: Implementation of Security Controls 4. Step 4: Assessment of Security Controls. 5. Step 5: Authorization of Information System. 6. Step 6: Monitoring All Security Controls.
3. Which of the following are the two risks in implementing technological innovations?
1. Discontinuity in customer service and insufficient training of key personnel.
2. Negative net present value of the product and agency conflict.
3. Inadequate design and misrepresented benefits.
4. Negative net present value of the product and escalation of operational risk.
5. None of the above
Option “2” is correct. The two risks in implementing technological innovation are (1) negative net present value, in which the product may not become successful enough to cover the initial investment and future costs, and (2) agency conflict resulting from managers choosing projects for growth that may be inconsistent with shareholder wealth maximization.
4. Operational risk hedging is limited because:
1. no commercial vendors exist to sell operational risk data
2. correlations among operational processes are known and fixed.
3. The objective nature of the risk assessment creates rigidity in the analysis.
4. accurately identifying risks that are not yet apparent is difficult.
5. None of the above
Option “4” is correct. Measuring and identifying operational risk is very subjective, in part, because the potential loss may not have yet occurred in any setting and may be difficult for analysts to imagine. This subjectivity is the impetus for various operational risk measurement models that have been developed. Rather than being known and fixed, correlations among various operational processes are often unobservable or difficult to estimate; in addition, they are likely to change in the face of catastrophic events. Vendors selling operational risk data do exist, but the relevance.
5. In order to calculate capital adequacy ratio, the banks are required to take into consideration, which of the following risks?
A. Credit risk
B. Market risk
C. Operational risk
Choose the most appropriate answer from the options given below:
1. A and C only
2. A and B only
3. B and C only
4. A, B and C only
Option “4” is correct. Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities. It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.
6. Which of the following is true regarding operational risk-
1. When borrowers or counterparties fail to meet contractual obligations.
2. The unpredictability of equity markets, commodity prices, interest rates, and credit spreads.
3. Loss due to errors, interruptions, or damages caused by people, systems, or processes.
4. The ability of a bank to access cash to meet funding obligations
5. All of the above
Option “3” is correct. Operational risk (OR) is the risk of loss due to errors, breaches, interruptions or damages—either intentional or accidental—caused by people, internal processes, systems or external events. For example, an error or fraud in a bank’s credit-underwriting process can cause the bank’s credit costs to rise
7. Which out of the following is not one of the approaches of calculating Credit Risk as per Basel-II framework?
1. Value at Risk
2. Standardized Approach
3. Foundation Internal Ratings-based approach
4. Advanced Internal Ratings-based approach
5. None of the above
Option “1” is correct. Basel II also provides banks with more informed approaches to calculate capital requirements based on credit risk, while taking into account each type of asset’s risk profile and specific characteristics. The two main approaches include the: Standardized approach, Internal ratings-based approach (Foundation Internal Ratings-based approach and Advanced Internal Ratings-based approach).
8. Which out of the following is not one of the approaches of calculating Operational Risk as per Basel-II framework?
1. Basic Indicator Approach
2. Standardized Approach
3. Advanced Measurement Approach
4. Foundation Internal Ratings-based approach
5. None of the above
Option “4” is correct. The Basel framework provides three approaches for the measurement of the capital charge for operational risk. These are Basic Indicator Approach (BIA), Standardized Approach and Advanced Measurement Approach.
9. When there is a risk of loss resulting from inadequate or failed internal processes, people and systems or from external event, it is called-
1. Liquidity risk
2. Systemic risk
3. Operational risk
4. Moral Hazard
5. None of the above
Option “3” is correct. The Basel Committee on Banking Supervision defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputation risk.
10.Match items of List-1 to List-2. 1. A-(ii), B-(iii), C-(iv),D-(i)
2. A-(i),B-(iv),C-(iii),D-(ii)
3. A-(iii),B-(ii),C-(iv),D-(i)
4. A-(iii),B-(iv),C-(ii),D-(i)
Option “5” is correct. · Liquidity Risk – Liquidity risk occurs when an individual investor, business, or financial institution cannot meet its short-term debt obligations. The investor or entity might be unable to convert an asset into cash without giving up capital and income due to a lack of buyers or an inefficient market. · Business Risk – Business risk is the exposure a company or organization has to factor(s) that will lower its profits or lead it to fail. Anything that threatens a company’s ability to achieve its financial goals is considered a business risk. However, sometimes the cause of risk is external to a company. · Financial Risk- Financial risk is the possibility of losing money on an investment or business venture. · Inflation Risk-Inflationary risk refers to the risk that inflation will undermine the performance of an investment, the value of an asset, or the purchasing power of a stream of income.
1. A-(ii), B-(iii), C-(iv),D-(i)