MCQ ON MARKET RISK

1) Risk may be defined as:
a) Uncertainties resulting in adverse outcome
b) Adversity may be in connection with planned objective or  expectation
c) When there is an adverse situation in terms of profitability is called financial   risk
d) All the above


2) Which of the following Risk Factors may affect the Business adversity
a) Sales volume and sales price
b) Purchase Price
c) Administrative expenses
d) All these


3) The features of Zero Risk are:
a) It does not have any uncertainty with it
b) There is no variation in net cash  flow
c) Return on such investment would be lower
d) All these


4) Which of the following instruments do not contain Zero  Risk?
a) Investment in Shares
b) Investment in Bonds-and Debentures
c) Investment in Term Deposits
d) Investment in Government Bonds


5) Which of the following statements is not  correct?
a) Large variation in net cash flows happens in the Business with higher   Risk.
b) Capital requirement would be lesser in higher Risk  Business
c) The profit potential would be lower in a Business with a lower   Risk
d) Lower the variation in net cash flow lower the  Risk


6) What is Risk Adjusted Returns on  investment?
a) It is the process where a Risk in a Business or investment, is netted against the returns from   it. ,
b) Higher the Risk Adjusted Return on capital higher is the reward for  investors.
c) The investors would have more performance for such investments
d) All  these


7) A Bank may face the following Risk:
a) Balance Sheet Risk
b) Transaction Risk
c) Operating and Liquidity Risk
d) All these


8) The factors contributing to Balance Sheet Risk  are:
a) Mismatch between the currency
b) Maturity and interest rate  pattern
c) Structure of Assets and Liabilities
d) All these


9) The Balance Sheet Risk may result in:
a) Interest rate mismatch Risk
b) Liquidity Risk
c) Foreign Exchange Risk
d) All these


10) Which of the following is not a Transaction  Risk?
a) Mismatch in Assets, and Liabilities portfolio
b) Credit Risk
c) Price Risk
d) Instrument Risk


11) The features price Risk are:
a) It includes the risks of loss due to the change in value of Assets and Liabilities
b) It also includes market risk due to fluctuations in price of Assets in the   market.
c) This may happen on account of Issuer Risk which depends on the financial strength of the issuer  d) All these


12) Which of the following contributes to Instrument  Risk?
a) The nature of hybrid instruments in the  market.
b) Fluctuations in the market conditions
c) The prices of various instruments may react differently from one another
d) All   these


13) Which of the following is not market liquidity  Risk?
a) Lack of liquidity of an instrument or Asset in  time.
b) The financial strength of an instrument.
c) The loss may occur due to fluctuations in the market price at the times of   liquidating.
d) All these


14) Which of the following may affect the yield on  Assets?
a) Commodity prices
b) Interest rates
c) Exchange rates
d) All these



15) The operating and liquidity risk may be on account  of:
a) Failure of execute or settle a  transaction
b) Adverse changes in the cash flows of  transactions
c) (a) and (b) both
d) None of these


16) The objectives of Risk management are:
a) Survival of an organization
b) Earning stability
c) Efficiency in operations
d) All these


17) Which of the followings is not an objective of Risk  management?
a) Uninterrupted operations
b) Higher deposit growth
c) Continued growth
d) Creating good image


18) What is Risk management?
a) It is the process of identifying and controlling the  Risk
b) The process includes measurement of  Risk
c) Monitor and control of Risk is also an important aspect of Risk management.
d)   fill


19) The major components of Risk management are:
a) Risk identification
b) Risk measurement
c) Risk control
d) All  these


20) Payment and Settlement Risk may be on account  of:
a) Payments and collections
b) Funds transfer
c) Clearing and settlement
d) All these


21) Risk in trading securities may arise from the following  activities:
a) Foreign exchange transactions
b) Equity holding
c) Lending and Repos
d) All these


22) Which of the followings is not an agency service of the  Bank?
a) Extending credit cards
b) Escrow
c) Depository Receipts
d) Securities fending


23) What is the Off Balance Sheet  Risk?
a) It is contingent in nature.
b) It can occur on account of issue of guarantees committed credit lines and issue of letter of credit.
c) Bank's commitment may happen on account of failure to meet, payment  obligations
d) All the above


24) The significance of contingent liability  is:
a) It adds to the Revenue generation of the  Bank
b) Banks may also have Contingencies  Receivables
c) The Bank is obliged to meet the commitment only on account of failure to meet the obligation by the person on whose behalf bank has commitment
d) All these


25) Derivative Risks are Off Balance Sheet and include the  following:
a) Swaps
b) Futures
c) Forward contracts
d) All these


26) What kinds of Risks Off Balance Sheet exposure may  have?
a) Liquidity Risk
b) Interest Risk
c) Market Risk
d) All  these


27) Which of the following statements is  correct?
a) Contingency exposure may become fund based  exposure.
b) It can be a part of Banking Boa -or Trading  Book
c) It may include credit Risk
d) All these


28) Which of the following statements is not  correct?
a) Off Balance Sheet exposures may become fund based exposure base0 OAF ceitoin contingencies.
b) Where Bank provides payment they are known as contingencies  given.
c) Off Balance Sheet exposure may not have Interest  Risk
d) Where Bank is the Beneficiary, it is known as receivable   contingencies.


29) The feature of liquidity risk are:
a) It may arise from funding of long term assets by short term  liabilities
b) The liabilities are subject to Refinance  Risk
c) Funding liquidity is inability to obtain funds to meet cash flow obligations
d) All   these


30) Which of the following statements is  correct?
a) The funding Risk may arise from the need to replace net outflows due to unanticipated withdrawals of deposit.
b) Time risk arises when performing Assets turn into non-performing  Assets
c) Call Risk arises due to crystallization of contingent liabilities
d) All these


31) The features of Interest Rate Risk  are:
a) It is an exposure of Bank's financial condition to adverse movements in interest   rates.
b) It has direct effect on Net Interest  Margin.
c) It may also affect the market value of Equity
d) All these


32) Which of the followings is not a mismatch  Risk?
a) Holding Assets and Liabilities with different maturity dates and  amount
b) Adverse movement in Interest Rate
c) When liability is repriced on a maturity date and this causes variation in the Interest   Rate
d) All the above


33) What is Yield Curve Risk?
a) When two different instruments maturing at different time horizon for pricing Assets and Liabilities.
b) There may not be parallel movement in the Interest Rates of both of the   instruments.
c) Non parallel movement in the Yield Curve may affect the Net Interest   Income
d) All the above


34) Which of the following statements is correct regarding Yield Curve  Risk?
a) When Interest Rates are floating Banks may price Assets and Liabilities on different instruments such as Treasury Bills, Call Money Rates, MIBOR etc.
b) A Bank needs to evaluate the movement in Yield Curves and impact of the curve on portfolio value and income
c) If a liability is raised through 91 days T Bill and is used to fund on Asset for 364 days it could be a Yield Curve Risk
d) All these


35) The features of Basis Risk are:
a) When interest rates of different Assets, Liabilities and Off Balance Sheet items change  in different magnitudes it is called Basis Risk.
b) When Interest Rates of Asses rise in different magnitudes as compared to interest rate on corresponding liability which may result in variation Net Interest Income, it would be known as Basis Risk.
c) The Basis Risk is quite visible in a Volatile Interest Rate Scenario.
d) All these


36) Which of the followings is not correct regarding the Basis  Risk?
a) When a variation in the market interest rate effects Net Interest Income to expand it will have unfavorable basis shifts.
b) When interest rate movement causes Net Interest Income to contract the basis would have moved against the Bank.
c) The loan portfolio is funded out of a composite liability portfolio, this causes higher degree of Basis Risk
d) None of these


37) The features of Embedded Option Risk  are:
a) When a Bank is exposed to Risk due to prepayment of a loan and premature withdrawal of term deposit it is called Embedded Option Risk.
b) This can be experienced in volatile  situations.
c) The greater the magnitude of changes in interest rate the higher will be the Embedded Option Risk.
d) All these


38) Which of the following statements is not correct regarding Embedded Option  Risk?
a) This results in reduction of projected cash  flow,
b) It does not affect the Bank's income.
c) The risk may arise due to premature exercise of call/put  options.
d) The withdrawals of deposits before maturity date would  also  cause  Embedded  Option Risk.


39) What is Reinvestment Risk?
a) When Interest Rate at which the future cash flows can be reinvested are uncertain it is called Reinvestment Risk.
b) Any mismatch in cash flows will expose a  Bank.
c) Since the market interest rates move in different directions, it will have variation in net interest income
d) All these


40) The features of Net Interest position Risk  are:
a) When there are more earning Assets than paying liabilities, interest rate may arise if market interest rates adjust downwards.
b) It may result in reduction in Net Interest  Income.
c) It will have an impact on the economic value of Bank's Assets
d) All these


41) What are the features of Price  Risk?
a) When Assets are sold before their maturities it may result in Price   Risk.
b) The Price Risk is closely associated with the Banks Trading   Volume.
c) Bank may create such Trading investments out of short term movements in interest   rates
d) All the above


42) Which of the following statements is not  correct?
a) The Bond prices and yields are directly  related.
b) Market Risk may apply for Pricing Risk for the Assets held in the Trading   Book.
c) The Market Risk may also apply to foreign currency Risk d) None of these


43) What is Forex Risk?
a) A risk which may arise due to adverse exchange rate movements is called Forex   Risk.
b) This occurs on account of an open position in spot or forward   contracts.
c) It is applicable on an individual foreign currency.
d) All these


44) A Counterparty Risk is:
a) It arises due to non-performance of the Trading partners where counterparty may refuse to perform.
b) It is treated as transient Financial  Risk.
c) It is more associated with Trading.
d) All these


45) The features of Country Risk are:
a) When a Risk arises due to imposition of restrictions by a country and a borrower is not able to perform the promise.
b) The Risk arises due to external  factor.
c) A counterparty has no control on such Risk.
d) All these


46) An Operational Risk can be defined  as:
a) A risk resulting from lack of internal controls or systems is an Operational   Risk.
b) Transaction Risk is also a part of Operational  Risk.
c) Compliance Risk is also included in Operational Risk.
d) All these


47) Which of the following statements is not  correct?
a) Strategic Risk is the part of Operational  Risk.
b) Any Risk which is not categorized as market risk may be Operational   Risk.
c) Scope to Operational Risk is very  wide.
d) Operational Risk may also arise due to external  factors.


48) Which of the followings is not Operational  Risk?
a) Fraud Risk
b) Adverse movement in Foreign Exchange  Risk.
c) Communication Risk
d) Documentation Risk


49) A Transaction Risk is:
a) Risk arising from fraud either internal or  external.
b) It may be on account of failed Business  processes.
c) When a Business is not able to maintain the continuity, it is known as Transaction   Risk.
d) All the above


50) Which of the following statements is not  correct?
a) Failed internal process is Transaction  Risk.
b) When a Bank fails to comply with regulatory requirements, it may face Compliance   Risk.
c) Compliance Risk is also known as Integrity  Risk.
d) Reputation Risk is not the Operational  Risk.


51) The non-compliance of the following may cause Compliance  Risk:
a) Standards of good practice
b) Codes of conduct
c) Compliance of applicable loans
d) All these


52) Strategic Risk can be defined:
a) A Risk arising from adverse business  decisions.
b) It is a function of compatibility of organizations strategic  goals.
c) This is measured from resources deployed to reach goals and quality of   implementation
d) All the above


53) Strategic Risk may arise due to:
a) Improper implementation of decisions
b) Lack of monitoring and control
c) Lack of responsiveness to industry changes.
d) All these


54) The consequences of Reputation Risk may  be:
a) Negative public opinion
b) Decline in customer base
c) Financial loss to the organization
d) All  these


55) Which of the following statements is correct?
a) Since a Business have variations in cash flows which results in   Risk.
b) The Risk in a Business may be measured by using standard deviation of past performance.
c) Standard deviation of risk may range from zero to one.
d) All these


56) Financial Risk can be defined as:
a) Uncertainties in cash flow.
b) Uncertainties resulting in adverse variation of  profitability.
c) A risk which may resulting outright losses.
d) Variations in Net Cash Flows.


57) Strategic Risk can be classified as:
a) Operational Risk
b) Interest Rate Risk
c) Forex Risk
d) None of these


58) Portfolio Risk is less than weighted average of individual Risks in the portfolio due   to:
a) Diversification effect
b) Individual Risk do not materialize in an unidirectional  manner
c) (a) and (b) both
d) None of these


59) If a Bank funds its Assets from a pool of composite liabilities, it may face the following     risk in addition to Credit and Operational Risk:
a) Basis Risk
b) Mismatch Risk
c) Liquidity Risk
d) All these


60) When a Bank sanctions a loan to a large Borrower,  which of  the following risks it may    not face?
a) Liquidity Risk
b) Market Risk
c) Credit Risk
d) Operational Risk


61) The Risk mitigation measures may result in:
a) Reducing downside variability
b) Reducing upside potential
c) (a) and (b) both
d) None of the above


62) If a depositor deposits in post office time deposit scheme, it  is:
a) Zero Risk Investment
b) Low Risk Investment
c) Reasonable Risk Investment
d) High Risk Investment


63) If a Borrower repay a pre matured loan, a Bank may have  the following Interest  Rate  Risk:
a) Yield curve Risk
b) Embedded Option Risk
c) Basis  Risk
d) Mismatch Risk


64) If a daily volatility of a stock is one percent  what  is  the  approximate  volatility for 10  days?
a) 3%
b) 10%
c) 1%
d) 4%


65) Capital charge component of pricing Account for:
a) Internal generation of capital
b) Cost of capital
c) (a) and (b) both
d) Loss Premium


66) Which of the following financial instruments are included in trading  transactions?
a) Debt securities
b) Equity
c) Forex instruments
d) All these


67. Which of the following a Trading Book of a Bank does not consist?
a) Cash Reserve with RBI
b) Derivatives held for trading
c) Positions in financial instruments arising from matched market  making.
d) Hedging positions


68) A Bank's Trading Book exposure may arise on account of the following  :
a) Adverse changes in the interest  rate.
b) Currency exchange rate unfavourable movements.


69) Which of the following may be adversely affected due to Trading Book Risk?     
a) Bank's Earnings
b) Net Interest Margin
c) Bank's Capital
d) All these


70) The features of Earnings of market portfolio  are:
a) Profit and loss arising from transactions.
b) The profit and loss between two dates is the variation of the market   value.
c) Any decline in value results in a market loss.
d) All these


71) What is Trading Liquidity?
a) It is ability to liquidate positions without affecting market  prices.
b) Without attracting the attention of other market participants.
c) (a) and (b) both
d) None of these


72) Liquidation Risk result in:
a) Average change in market price.
b) Inability to liquidate position at a fair market  price.
c) Inability to liquidate position at any price.
d) All these


73) Which of the following statements is correct?
a) Assets Liquidation Risk is a situation where a specific Asset faces lack of trading liquidity
b) Market Liquidation Risk is a situation where liquidity crunch is general
c) The above (b) affects trading liquidity adversity
d) All these


74) The features of Credit Risk are:
a) Credit Risk of debt instruments is indicated by credit  rating.
b) It indicates the Risk level associated with the debt  instrument.
c) Lower the Risk level, lower is the spread over Risk Free Rate
d) All these


75) The consequences of Credit Risk  are:
a) When Rating of a financial instruments is lowered, the spread over the Risk Free Rate increases.
b) The price of the instruments is declined.
c) Where a default in payment of either the principal or interest occurs, market price of financial instruments deteriorates.
d) All these


76) Which of the following statements is not  correct?
a) Credit Risk may arise on account of default of the  Issuer/Borrower.
b) Rating migration may not cause Credit  Risk.
c) Deterioration of the credit quality of the instrument have adverse impact on the price of financial instrument
d) None of these


77) Derivatives are:
a) Over the counter instruments.
b) They are not liquid as market instruments.
c) Banks hold derivatives until maturity.
d) All these


78) Which of the following is not a derivative  instrument?
a) Interest Rate Swap
b) T. Bill
c) Currency Swap
d) Options


79) Which of the following statements is correct regarding  Derivative?
a) Mark to market value of a derivative depends on market  movements.
b) It is the present value of all future flows at market  rates.
c) Hold to maturity risk is also known as  counterparty risk
d) All these


80) The current credit risk can be defined  as:
a) It is a risk exposure in the current liquidation  value.
b) Value of financial instrument varies depending upon market  factors.
c) Credit risk amount varies with the change in  the value
d) All these


81) What is Settlement Risk?
a) In a financial market transaction one party pays money and receives the  instruments.
b) The counterparty receives the money and parts with the  instrument.
c) If any of the above transacting parties defaults it is known settlement  risk.
d) All the above


82) Which of the following is true regarding settlement  risk?
a) It is a systematic Risk.
b) There is much emphasis now a days on Risk free  settlement.
c) In India we have now real time gross settlement system.
d) All these


83) Which of the followings Market Risk Management Division does not  consist?
a) Risk Management Committee
b) Asset Liability Management Committee
c) The Asset Liability Management Support Group
d) All these


84) Which of the following are the responsibilities of Risk Management  Committee?
a) Deciding prudential limits.
b) Evaluating Risk measurement models
c) Setting guidelines for market risk management.
d) All these


85) What is sensitivity?
a) It indicates deviation of market price due to unit movement of a single market  parameter.
b) If the liquidity in the market increases it would result in increased   demand.
c) The increased demand may increase market price.
d) All these


86) The market parameters which parameters which derive market value  are:
a) Demand Supply Position
b) Interest Rate
c) Inflation
d) All these


87) Which of the following is relevant to the measurement of  sensitivity?
a) This indicates the degree of risk associated with the portfolio against the changes in interest rate.
b) It does not consider the impact of other  parameters.
c) Sensitivity is more appropriate measurement to measure impact of interest rate  changes
d) All the above


88) What is Basic Point Value?
a) It indicates the change in value due to one basis change in market   yield.
b) It is a risk measurement tool.
c) Higher the Basic Point value, higher is the risk associated with the   instrument.
d) All the above


89) Which of the following is not relevant regarding Basis Point  value?
a) This helps to calculate profit or loss for a given change of  yield.
b) Basis Point value does not change with the remaining  maturity.
c) It may decline with time.
d) It can be zero on the day of  maturity.


90) Which of the following is significant regarding  Duration?
a) This concept was introduced by Frederick Mc  Cauley.
b) It was proposed in 1938.
c) It describes bond's price sensitivity to yield change with a simple  number.
d) All the above


91) Which of the following is correct regarding  Duration?
a) The longer the duration of a security the greater will be the price   sensitivity.
b) Bond price changes can be measured by using modified  duration.
c) It is discounted by one period yield to maturity.
d) All these


92) The Relationship of modified duration can be defined  as:
a) % change in price + (- ) modified duration multiplied by yield   change.
b) Yield change
c) Change in market price and change in interest
d) None of these


93) What is Downside Risk?
a) It is a comprehensive measure of risk as it integrates sensitivity and volatility with the adverse effect of uncertainty.
b) This is the most reliable model.
c) Downside potential only captures possible losses ignoring profit potential.
d) All  these


94) What is Value at Risk?
a) It can be defined as the loss amount accumulated over a certain period that is not exceeded in more than a certain percentage of all time.
b) It is defined as the predicted worst case loss at a specific confidence level over a certain period  of time assuming normal trading conditions.
c) Value at Risk model relies on a model of random changes.
d) All these


95) A bank is having one day value at risk of Rs. 10 crore with 99 per cent confidence level what does it signify?
a) There is only one change in 100 that daily loss will more than 100 core under normal trading conditions.
b) There is one percent chance that the daily loss may exceed Rs. 10   crore
c) It does not estimate losses in abnormal situations
d) All these


96) The features of the value at Risk  are:
a) It measures potential loss in market value of a  portfolio.
b) It uses estimated volatility and correlations with a given  horizon.
c) It is measured with a given confidence interval.
d) All these


97) The conditions for calculating value at risk are:
a)  Volatility of price. b) Correlation  of  prices with  respect of  all other Assets/Liabilities  in the portfolio.
c) Normal circumstances means that the value at risk can not be measured when market is under abnormal conditions
d) All these


98) What is yield volatility?
a) It is degree of variance in  yield.
b) This is unaffected by time and duration.
c) It rises when the yield fails.
d) All these


99) The price volatility is:
a) A degree of variance in price.
b) The yield does not effect the price  volatility.
c) The time and duration affect the volatility substantially.
d) All these


100) Which of the following steps are involved in calculating price volatility?
a) It is multiplication of yield volatility and Basis Point  Value.
b) The above (a) is then multiplied by the  yield.
c) The above (b) is divided by price.
d) All these


101) The   approach   to   calculate   the   value   at   risk   are:
a) Covariance matrix method
b) Historical simulation
c) Monte Carlo simulation
d) Any of these


102) What are the basis parameters for calculating value at   risk?
a) Holding period
b) Confidence interval
c) Historical time horizon
d) All  these


103) • The features of correlation approach  are:
a) It can be applied only in normal distribution  function.
b) It uses standard deviation estimates.
c) It is useful on providing first hand estimation.
d) All these


104) Which of the following is relevant to correlation  approach?
a) This depends on observed behaviour of market  variables.
b) Greater frequency of small changes occurring within a standard deviation of the   mean.
c) Lower frequency of changes that are quite manifest between two standard  deviations.
d) All the above


105) How the historical simulation approach  works?
a) The hypothetical profit and loss portfolio of current positions is estimated for everyday in the data sample.
b) The correlation among the exposures and the volatility are implicit in the historical price movements.
c) From the profit and loss values, the biggest gain and worst loss limits are   determined.
d) All the above


106) The features of historical simulation approach  are:
a) The approach applies the historical price movements  directly.
b) 100 or more trading data is used.
c) It calculates change in the value of a position using the actual historical movements of the underlying asset.
d) All these


107) What is the impact of length of historical period   chosen?
a) It affects the results.
b) If period chosen is too short it may not establish relationships between the various assets and within each asset class.
c) If the period is too long it may be too stale to predict the future.
d) All these


108) The advantages of historical simulation approach  are:.
a) It does not require the user to make any explicit assumptions about correlations and the dynamics of risk factors.
b) The simulation follows every historical move.
c) (a) and (b) both
d) None of these


109) What is Monte Carlo simulation  approach?
a) It can deal with any pattern of market  movements.
b) It has higher efficiency.
c) Once the particular distribution is identified, the simulation can take care of scientific treatment.
d) All the above


110) The features of Monte Carlo simulation  are:
a) It calculates the change in the value of  portfolio
b) It uses a sample of randomly generated price  scenario.
c) The user make certain assumptions
d) All these


111) What are the assumptions required to be made in Monte Carlo simulation   approach?
a) Correlation between Risk Factors
b) Market structure
c) Volatility of Risk factors
d) All these


112) Why value at risk is  useful?
a) It translates portfolio exposures.
b) It aggregates and reports multi product multi market exposures into one  number.
c) It meets external Risk management disclosure and expectation.
d) All these


113) Which of the following is not an advantage of value at   risk?
a) It is not a worst case  scenario.
b) It is an important component of current best practices in Risk  management.
c) It has a value as a probabilistic measure of potential losses.
(d) None


114) Which of the following statements is correct regarding value at   Risk?
a) It is used for decisions as to what business to do and what not to   do.
b) It can not substitute sound management judgment and internal control  methods.
c) It is used to measure and manage market Risks in trading and investment  portfolio.
d) All the above


115) The features of volatility measurement are:
a) Value at Risk uses past data to compute  volatility.
b) Arithmetic moving average from historical time series data is used to estimate  volatility.
c) Exponential moving average method may also be used to estimate  volatility.
d) All the above


116) What is Back Testing?
a) It is a process where model based value at Risk is compared with the actual performance of the portfolio.
b) The Testing is used to assess the accuracy of existing  models.
c) It requires comparison with actual performance on a continuous basis for a given period.
(d) All the above


117) What is Stress Testing?
a) It is used to determine possible changes in the market value of a portfolio which could arise due to non-normal movement in one or more market parameters.
b) This involves identifying market parameters to stress, quantum of stress an determine time frame. c)The above parameters are used on portfolio. 
d) All these


118) Which of the following techniques stress testing  covers?
a) Simple sensitivity analysis
b) Scenario analysis
c) Extreme value theory
d) All these


119) The simple sensitivity test is:
a) A simple sensitivity test isolates the short term impact on a portfolio's  value.
b) It works on predefined moves in a particular market risk  factor_
c) (a) and (b) of the above
d) None of these

120) What is scenario  analysis?
a) It analyses the shocks which may affect number of market risk factors if an extreme  even  occurs.
b) It assesses potential consequences of a  firm.
c) It can be based on historical event or hypothetical event.
d) All these


121) The features of Extreme Value Theory  are:
a) It is the statistical theory on the behaviour of the tails (very high and low potential values) of probability distribution.
b) It is more flexible.
c) It helps in better capture the risk of loss in extreme but possible   circumstances.
d) All the above


122) The features of a good stress test  are:
a) Be relevant to current position.
b) It considers changes in all relevant market  rates.
c) Consider market liquidity
d) All these


123) In which of the following manners the stress tests are   used?
a) To manage funding risk.
(b) Set limits for traders.
c) To determine capital changes on trading desk position
d) All these


124) The steps to monitor and control the Risk include:
a) Policy guidelines limiting roles and authority.
b) Guidelines on portfolio size and mix.
c) Systems and procedures to capture all risks.
d) All  these


125) What is relevant to limits and  triggers?
a) Sensitivity and value at Risk limits of trading portfolios are measured  daily.
b) Approved management triggers or stop loss for all mark to market risk taking  activities.
c) Fixing appropriate market risk limits for  basis risk.
d) All these


126) Which of the following is to be avoided to manage risk of trading   liquidity?
a) In frequently traded instruments.
b) Instruments with unusual tenors
c) One side liquidity in the market.
d) All these


127) Risk mitigation is:
a) Reduction in market risk which is achieved by adapting strategies that eliminate volatility of portfolio.
b) Risk mitigation measures reduce upside potential or profit  potential.
c) The risk mitigation strategies which involve counterparty will always be associated with counterparty risk.
d) All these


128) Which of the following statements is correct regarding correlation  measures?
a) Prices of two financial instruments which have perfect negative correlation would move exactly in opposite directions.
b) If financial  instruments  have  negative  correlation  and  it  is not perfect prices  would  move   in
opposite direction but not be 'exact.
c) The price volatility will be considerably low.
d) All these


129) If a portfolio have fixed rate bond and an interest rate swap with long on variable rate of interest. What would be the consequences?
a) As market interest rates move up the portfolio will suffer loses on   Bond.
b) The Bond price would come down due to upward movement in interest   rates.
c) Swap valuation will increase.
d) All these


130) The features of an option are:
a) It, is a method to hedge market risks.
b) An option provides a right and not  obligation.
c) The cost involved in an option is called  option premium.
d) All these


131) Which of the following statements is correct regarding  option?
a) A long position on call option confers a right to buy the underlying   instrument.
b) A pre determined price is called strike  rate/price.
c) A long position on put option confers a right to sell the underlying   instruments.
d) All the above


132) A Bank expects fall in price of a security if it sells in the market. The bank may face the following Risk:
a) Asset Liquidation Risk
b) Market Risk
c) Operational Risk
d) All   these


133) An 8 year 8% semi annual bond has a basis point value of Rs. 125. The yield on the bond has increased by 5 basis points. What would be the effect?
a) A loss of Rs. 625
b) A loss of Rs. 1000
c) A profit of Rs. 625
d)   None


134) 1 day value at risk of a portfolio is Rs. 500.000 with 95 percent confidence  level. In a  period of 6 months (125 working days) how many times the loss on the portfolio may —exceed  Rs. 500000:
a) 4 days
b) 5 days   
c) 6 days     
d) 7 days


135) A Bank suffers loss due to adverse market movements of a security. The security was held beyond defeasance period. The Bank may suffer the following risk:
a) Market Risk
b) Operational Risk
c) Market Liquidation Risk
d) Credit Risk


136) A security which was rated A plus migrates to A rating. The risk will   be:
a) Market Risk
b) Credit Risk
c) Market Liquidation Risk.
d) Operational Risk


137) A Bond which have remaining maturity of 5 years is presently yielding 6%. Its modified duration is 5 years. What would be its Mc Cauley's duration?
a) 5.05%
b) 3.77%   
c) 5.30%     
d) 6.00%


138) The stress testing is needed for the following  reasons:
a) It helps calibrating value at Risk model:
b) It assesses Risk due to abnormal movement of market  parameters.
c) It is an additional Risk measurement tool.
d) It is more accurate than value at Risk method.


MCQ ON  CREDIT RISK

139) The features of Credit Risk are:
a) It arises from lending activities of a  Bank.
b) When Borrower does not pay either interest or principal as and when due for  payment.
c) If the loan is demand loan, the Borrower fails to make payment as and when   demanded.
d) All the above

140) The Credit Risk may arise  from:
a) Direct lending
b) Not crystallization of liability under the  guarantees
c) In case of securities if settlement is not affected
d) All these


141) What is default Risk?
a) It is the potential failure of a Borrower to make promised  payments.
b) -In case of default a fraction of the obligation is paid, it is called recovery   rate.
c) The default may be partly or wholly.
d) All these


142) The features of credit spread Risk  are:
a) The risk may be due to worsening in credit  quality.
b) This may result in widening of credit  spread.
c) This is known as credit spread Risk or down grade Risk.
d) All these


143) Which of the following statements is not  correct?
a) Loans are usually marked to market.
b) Capital market portfolios are marked to market.
c) Default Risk and down grade Risk are transaction level  Risks.
d) Risk associated with credit portfolio as whole is termed portfolio  Risk.


144) Portfolio Risk has following components:
a) Systematic as instrinsic Risk b) Concentration Risk
c) (a) and (b) both
d) None of these


145) The Systematic Risk is:
a) When portfolio Risk is reduced due to  diversification.
b) When portfolios are diversified among the various market segments the risk is reduced to a minimum level. c) This is known as systematic Risk
d) All these


146) The concentration Risk is:
a) When portfolios are concentrated in form of a particular segment it  gets concentration  Risk
b) If the particular segment does not perform well the portfolio will have concentration   Risk.
c) This happens only when portfolio is not diversified and it has more weightage in respect of a particular industry
d) All these


147) Which of the followings is relevant to systematic  Risk?
a) The Risk is associated with the  economy.
b) If the economy does nto perform well, the portfolio will be  affected.
c) When economy stagnates, the credit portfolio of Bank does not perform  well.
d) All the above


148) What is Risk diversification?
a) The diversification takes place across the Trade and  Borrowers.
b) Diversification occurs at the Borrower and geographical level  both.
c) The theory applies to diversification is that different firms do not default at the same   time.
d) All the above


149) Risk measurement consists of:
a) Measurement of Risk through credit rating.
b) Quantifying the Risk by estimating expected loan  losses.
c) Estimating unexpected loan losses.
d) All  these


150) The features of credit Rating  are:
a) It is a process to assess the capability of a Borrower to honour its financial commitments in future.
b) The process helps in deciding the price of loans and  advances.
c) Defaults in credit portfolio of a Bank may also be estimated.
d) All these


151) The guidelines of RBI on credit Rating  are:
a) The Banks should apply credit Rating to the Borrower accounts and classify   categorywise.
b) To develop and maintain necessary data on defaults of Borrowers.
c) The Bank may estimate expected defaults, expected contribution art; t requirements to maintain the portfolio.
d) All these


152) Credit Rating models differentiate the Borrowers in terms of degree of   stability:
a) The Sales volume
b) Net profit
c) Revenue generation
d) All these


153) Which of the followings is not  correct?
a) The profitability has direct affect on  Rating.
b) A highly profitable firm may have higher level of uncertainties in revenue  generation.
c) Less profitable firm may have more stable revenue  generation.
d) Stability in revenue generation is an important aspect in developing a credit Rating model.


154) What is Rating Migration?
a) It indicates change in the Rating of a Borrower over a period of   time.
b) The Rating model used does not change.
c) It is useful when migration of large number of accounts of similar rating is   observed.
d) All the above


155) Which of the following factors, a Rating model takes in the   account?
a) The Risk drivers in the various areas have been included in the   model.
b) The model meet the market standards.
c) (a) and (b) both
d) None of the above


156) The popular credit Rating models
a) The Altman's Z score
b) J.P. Morgan
c) Credit Swiss
d) All these


157) The instruments of credit Risk management transaction level  are:
a) Risk Analysis Process
b) Credit Appraisal Process
c) Credit Audit and Loan Review
d) All these


158) The efficiency of credit Risk management can be improved  by:
a) Identifying the credit quality of Borrowers objectively.
b) Increasing default analysis
c) Providing early warning signals for deterioration in credit Risk of  Borrowers.
d) All the above


159) Bank's loan policy document should contain:
a) Loan Review Mechanism
b) Rating Standards and Benchmarks
c) Credit Approval Mechanism
d) All these


160) To limit the credit Risk prudential limits may be specified in respect   of:
a) Financial and profitability
b) Credit exposure
c) Maturity profile of the loan book
d) All these


161) What is Risk pricing?
a) It stresses on Risk based pricing of  loans.
b) It helps in generation of adequate Risk adjusted return on  Capital
c) The credit spread should take into account the expected loss rates  and  charges  on Capital
d)All the above


162) The features of Risk return pricing strategy  are:
a) Borrowers with weak financial position should be priced  high.
b) Pricing of credit Risk should take into account the probability of  default.
c) The pricing should be linked to credit Rating.
d) All these


163) Which of the following activities are important for monitoring and control of rreri' -LtAk? --
a)Identification of portfolio credit weakness.
b) Measurement of specific risk associated with individual credit  exposure.
c) Evaluate exposure distribution over Rating categories.
d) All  these


164) Which of the following is not an activity to monitor and control the   Risk?
a) To set exposure limits to contain concentration  Risk.
b) Deciding Risk pricing to individual  Borrowers.
c) To follow value at Risk model.
d) To fix quantitative ceilings on aggregate exposure in specified Rating categories.


165) Which of the followings are important to maintain portfolio  quality?
a) Quantitative ceilings on aggregate exposure.
b) Rating wise distribution of Borrowers in various  industries.
c) Monitoring of exposure performance.
d) All these


166) Which of the followings is relevant to maintain the quality of the   portfolio's
a) To undertake portfolio reviews stress tests and scenario  analysis.
b) To introduce discriminatory time schedule for review of  Borrowers.
c) (a) and (b) both
d) None of these


167) The external credit Risk factors are:
a) State of the economy
b) Wide fluctuations in equity price
c) Foreign Exchange rate
d) All these


168) The new and emerging opportunities for credit expansion  are:
a) Pass through certificate
b) Syndicated loans
c) Project finance
d) All these


169) Which of the followings new products have different  risks:
a) Secondary loan trading
b) Securitisation
c) Credit derivatives
d) All these


170) The objective of Loan Review Mechanism  are:
a) Identifying loans with credit weaknesses and initiate timely  action.
b) To evaluate portfolio quality.
c) To ensure adequate provision for loss assets
d) All these


171) Which of the following is relevant to Loan Review  Mechanism?
a) To ensure compliance of loan policies and  procedures
b) To supply information on credit Administration
c) (a) and (b) both
d) None of these


172) The Loan Review Mechanism should focus  on:
a) Accuracy and timely credit Ratings.
b) Compliance of internal systems and procedures
c) Post sanction monitoring and follow-up
d) All  these


173) The Loan Review Mechanism should not focus  on:
a) Sufficiency of loan documentation
b) Extent of deposits held with the Bank by a  Borrower
c) Portfolio quality.
d) Suggesting improvements in portfolio quality.


174) The quality of credit decisions should be evaluated with reasonable time   say:
a) 1 month
b) 2 months
c) 3 to 6 months 
d) once in a half year


175) The features of credit Risk mitigation  are:
a) It is a process through which credit Risk is  reduced.
b) Cre.dit review mechanism techniques reduce credit  Risk.
c) Advantage of Risk mitigation must be weighed against the Risk  acquired.
d) All the above


176) How the credit Risk can be  mitigated?
a) Exposure collateralized by first priority claim.
b) Buying a credit derivative to offset credit  Risk.
c) Asset securitization can also be used to reduce the credit Risk.
d) All these


177) The process of securitization  is:
a) It is a process where financial securities are issued against the cash flow generated from a pool of Assets.
b) A special purpose vehicle is created for the  purpose
c) Special purpose vehicle issues financial securities to service interest and  payments.
d) All the above


178) The securitization include Asset backed securities  like:
a)-Mortgage loans
b) Currency swaps
c) Credit derivatives
d) All  these


179) Which of the followings is correct regarding  securitization?
a) The oriainated Bank transfers the ownership of such Assets to the securitized company_
b) The original Bank transfers credit Risk to the  investors.
c) The securitized company may raise resources from the market
d) All the  above


180) What are credit derivatives?
a) When credit Risk from Assets are unbundled into a commodity and traded in the market they are called credit derivatives.
b) Credit derivatives transfer risk in the credit Assets  without transferring underlying Asset,
c)They are Off Balance Sheet financial instruments.
d) All  these


181) The motives for credit derivatives for protection buyers  are:
a) Transferring credit Risk without transferring the Credit Asset.
b) Hedging against credit Risks.  -
c) Better portfolio management by diversification.
d) All these


182) Motives for credit derivatives for protection sellers  are:
a) Yield enhancement
b) Speculation
c) Diversification of credit Risk,
d) All  these


183) The credit linked notes are:
a) They are Off Balance Sheet items.
b) They convert credit derivatives into Capital market  instruments.
c) Special separate company formed for this purpose can raise money from the market by issuing credit linked notes.
d) All these


184) Which of the followings is not a credit   Risk?
a) Default Risk
b) Credit Spread Risk   
c) Intrinsic Risk     
d) Basis Risk


185) Risk of a portfolio with over exposure in steel sector will   be:
a) more than systematic Risk
b) equal to intrinsic Risk
c) Less than intrinsic Risk
d) None of these


186) Which of the following statements is  correct?
a) Credit Risk measurement is based on credit  Rating.
b) Effective monitoring and control is needed to control lending  Risk.
c) Loan Review Mechanism is an effective tool for constantly evaluating the quality of loans.
d)All the above


187) The Risk that arises due to worsening of credit quality  is:
a) Intrinsic Risk
b) Credit Spread Risk
c) Portfolio Risk
d) Counterparty Risk


188) Which of the following skills are necessary for effective management of credit   portfolio?
a) Knowledge of credit Rating models.
b) To maintain necessary data on defaults of Borrowers rating category  wise.
c) Both (a) and (b)
d) None of these


189) Which of the following models combines five financial ratios using reported accounting information and equity values to produce an objective measure of Borrowers financial position?
a) Altman's Z score
b) Credit Metrics 
 c) Credit Risk Plus     
d) All these


190) A transaction where financial securities are issued against eh cash flow generated from a pool of Assets is called:
a) Securitisation
b) Credit Default Swaps
c) Credit Linked Notes
d) Total Return Swaps


191) Under the process of securitization the Rights of original lender are  transformed  in  form of:
a) Securitised company
b) Investors
c) Special purpose vehicle
d)  None


192) The features of total return swaps  are:
a) The protection buyer swaps with the protection seller total actual return on an asset in return for premium.
b) The premium is arrived at by adding a spread to a reference rate like   LIBOR.
e) The protection seller is able to synthetically create an exposure to the reference asset without actually lending to it.
d) All  these


MCQ ON  OPERATIONAL  RISK

193) The- operational Risk may arise on account of failed or  inadequate:
a) internal processes
b) people and systems
c) external events
d) All


194)Operational Risk on account of people oriented causes may  include:
a) negligence
b) incompetence
c) insufficient training
d) All these


195)The Transaction Based Causes in the operational Risk may  include:
a) Business volume fluctuation
b) Organisational Complexity
c) Product Complexity
d) All these


196)Operational control based causes will include the  following:
a) Inadequate segregation of duties
b) Lack of management supervision
c) Inadequate procedures
d) All these


197) Technology oriented causes under operational Risk will not include the  following:
a) Poor technology
b) Lack of management supervision
c)  Lack of automation
d) Poor design development


198) Effect based operational Risk may include the  following:
a) Legal Liability
b) Regulatory compliance and taxation penalties
c) Restitution
d) All these


199) The following events may result in operational  Risk:
a) Internal Fraud
b) External Fraud
c) Employment practices and work place safety
d) All these


200) Operational Risk may arise on account of the following  events:
a) Damage to physical Assets
b) Business disruption
c) Execution delivery and process management
d) All these


201) How many principles of Basel II document are relevant to organization level?
a) 10
b) 3
c) 7
d) 2


202) The operational Risk management policy should cover the  following:
a) Operational Risk management structure
b) Role and Responsibilities
c) Operational Risk management processes
d) All these


203) The process of operational Risk management  include:
a) Identification of Risk/control.
b) Implementation of Qualitative Approach to assess operational  Risk_
c) To analyse operational Risk profile
d) All these


204) Which of the following activities are relevant to operational Risk control   practices?
a) Collection of operational Risk data.
b) Adequate feedback mechanism
c) Management and control of large exposures
d) All these


205) The operational Risk can be measured  through:
a) the Basic indicator approach
b) the Standardised approach
c) Advanced measurement approach
d) All these


206) The Feature of Basic Indicator Approach  are:
a) A Bank must hold capital for operational  Risk.
b) The amount of Capital should be equal to 15% of positive annual gross   income.
c) Gross income is defined as net interest income plus net non-interest  income
d) All the above


207) Under the standardized approach, Banks divide their business activities into following Business lines:
a) 2
b) 8
c) 10 
d) 12


208) What is the process of Standardised  Approach?
a) Gross income is a broad indicator under each business  line_
b) Gross income serves as a scale of Business  operations.
c) The capital charge for each business line is calculated by multiplying gross income by a factor assigned to that business line.
d) All these


209) Which of the following Business lines, Beta Factor is   18%?
a) Corporate Finance
b) Trading and Sales
c) Payments and Settlement
d) All these


210) Which of the followings is correct regarding Business Line Beta   Factors?
a) Retail Banking and Asset Management 12%
b) Retail Brokerage 12%
c) Commercial Banking 15%
d) All these


211) The steps involved in operating profiling  are:
a) Identification and quantification of operational  Risks.
b) Identification of Risk concentration.
c) Formulation of Bank's strategy for operational Risk management
d) All  these


212) Which of the followings is relevant for estimation of level of operational   Risk'?
a) Probability of occurrence
b) Potential financial impact
c) Impact of internal controls
d) All these


213) Estimated impact of internal control depends  on:
a) Historical effectiveness of internal controls.
b) Estimated impact of internal controls on  Risks.
c) The above is estimated as fraction in relation to total control which  is  valued at  100%
d) All  the above

214) Estimated level of operational Risk will be calculated  as:
a) Estimated probability of occurrence
b) Multiply (a) by estimated potential financial impact.
c) Multiply (b) by estimated impact of internal  controls
d) All the above steps are  considered


215) How operational Risk mitigation could be  achieved?
a) Insurance cover may minimize the Risk.
b) Capital Allowance under insurance is  available.
c) Qualitative approach in operational frame work would also be useful.
d) All these


216) What is scenario analysis?
a) It involves expert opinion in conjunction with external  data.
b) It evaluates exposure to high severity  events.
c) The Approach uses the knowledge and experience of Risk Management  experts.
d) All the above


217) Scenario analysis should be  used:
a) To assess the impact of deviations from the correlation  assumptions.
b) To evaluate potential losses arising from multiple simultaneous operational Risk  loss events.
c) Both (a) and (b)
d) Only (a)


218) Integrated Risk Management is:
a) To manage all risks that are associated with all the activities in an   organization
b) The ultimate impact of all the activities lies on Revenue  generation.
c) The sum total of all risk impacts is a crucial factor.
d) All these


219) In a Bank integrated Risk  includes:
a) Liquidity Risk
b) Interest Rate Risk 
c) Market and Credit Risk
d) All  these


220) Which of the following is relevant to integrated  Risk?
a) Total Risks of an organization are also the net effect of all Risks associated with an organization.
b) Net effect of all Risks may not be the same due to diversification effect of   Risks.
c) Integrated Risk implies coordinated approach across various Risks.
d) All   these


221) Which of the following is correct regarding integrated  Risk?
a) Risks add to instability
b) Higher the Risk more is instability
c) Risk adjusted returns on capital assumes importance in integrated Risk   management
d) All the above


222) The significance of integrated Risk management  is:
a) It integrates organizations internal and external business  processes.
b) It applies Standard Risk Terminology.
e) It facilitates reporting which helps in taking optional Risk  decisions.
d) All the above


223) The features of integrated approach for Risk management  are:
a) The process of supervising risk exposure gets  centralized
b) Organization can decide how best to transfer  Risk
c) It is an ongoing Business process
d) All these


224) Which of the following is not an advantage of integrated Risk   management?
a) Day to day operational activities are not  designed
b) It facilitates greater transparency for the investors.
c) Revenue and earnings are enhanced.
d) It controls downward Risk potential.


225) The Business challenges to manage integrated Risk are:
a) Globalization of market.
b) Concern about business continuity and operational reliability
c) Fast technological changes
d) All these


226) Which of the following are limitations in identifying the issues in integrated Risk management? a) Cultural limitations
b) Business unit boundaries
c) (a) and (b) of the above
d) None of these

227) What is the utility of integrated Risk management for a   Bank?
a) It helps a Bank to relate capital reserves more  effectively.
b) It helps in quantifying the amount of capital required to absorb unexpected   losses.
c) It contributes to better business performance.
d) All these


228) Risk Adjusted Rate of capital can be  determined:
a) By dividing a unit's net income by its economic  capital
b) It can be achieved by producing a profitability which is  common across the  Business units.
c) Both (a) and (b)
d) None of these


229) The Risk Adjusted Rate of capital can also be used   to:
a) Evaluate pricing decisions
b) Product profitability
c) Differential between relationships that makes money for an  institution and for those do  not.
d) All the above


230) The integrated Risk management process consists  of:
a) Integration of Risk management strategy
b) Assigning Accountability to the concerned executive
c) Development of Risk management system
d) All these


231) The process of integrated Risk limits will be helpful  in:
a) Communication Risk appetite in the organization
b) Maintenance of overall exposure at acceptable  level
c) Affecting delegation of authority
d) All these


232) The impact of Basel II recommendations on integrated Risk management would   be:
a) Significant reduction in capital requirement
b) Lower capital charges
c) Compliance with expected standards of identifying measuring and controlling  Risk
d) All the above


233) Which of the followings is not operational  Risk?
a) Defaults
b) External Events
c) People and Systems
d) Inadequate internal processes


234) Which of the followings Basel II recommended  for:
a) Cause Based Classification
b) Event Based Classification
c) Effect Based Classification
d) All these


235) The advantages of integrated Risk framework  are:
a) It relates Capital and Reserves more effectively to their actual level of Risk   exposure.
b) To evaluate pricing decisions
c) To evaluate product profitability
d) To affect Risk Transfer decisions


236) Measurement of operational Risk for the purpose of capital allocation can be done through:
a) Basic Indicator Approach
b) Standardised Approach
c) Advanced Measurement Approach
d) Any of these


237) A general approach for estimating the level of operational Risk can be based   on:
a) Estimated profitability of concurrence
b) Estimated potential financial impact
c) Estimated impact of internal controls
d) All these


238) A proper management of operational Risk would result  in:
a) Lesser Risk Capital.
 b) Competitive edge
c) (a) and (b) both
d) None of these


239) Given the following information, what would be level of operational Risk? Probability of occurrence = 4, Potential financial impact =-4, Impact of internal controls = 0%
a) 4
b) 2
c) 0
d) 3


240) What is the Beta factor for corporate finance under standardized approach?
a) 15%
b) 18%
C) 12%
d) 10%


241) Systematic Risk is the Risk  of:
a) Failure of a Bank
b) Failure of entire Banking system
c) Failure of two Banks simultaneously
d) Where a group of Banks fail due to inter-relation  effect.


242) The Central Bank Governors of G-10 countries participate in the Basel committee on Banking supervision. The members are
a) 13
b) 12
c) 11
d) 10


243) 1988 Capital Accord Framework accounted  for:
a) Credit Risk
b) Market Risk
c) Defined capital component
d) All these


244) The purpose of Back Testing is:
a) To test a model
b) To compare model results and actual performance.
c) To record performance
d) All these


245) Under Basel II Capital requirements under the accord  is:
a) The maximum capital that is required to be  maintained
b) Minimum capital to be maintained
c) Both (a) and (b)
d) None of these


246) Which of the following impacts regulatory framework has on Risk management of Banks?
a) It devices constraints and guidelines which promote Risk management  practices
b) The regulations stimulates development
c) It also enhances the Risk management process of Banks
d) All these


247) Regulations on Risk management are also helpful  in:
a) Defining Risk in a better way
b) Creating better methodologies for measuring Risk
c) Both (a) and (b)
d) None of these


248) Which of the followings is the basic concept for imposing regulatory measures for Risk management?
a) Capital adequacy principle and Risk based capital
b) Bank's profitability
c) Bank's Business performance
d) All these


249) The regulatory measures on Risk management focus  on:
a) Promoting sound business and supervisory practices.
b) Controlling and monitoring of systematic Risk
c) Protecting interest of depositor's
d) All these


250) What is the Systemic Risk?
a) It is the Risk of failure of whole Banking  system.
b) Individual Bank's of failure is one of the major sources of systematic   Risk.
c) This takes place when there are high inter-relations between Banks through mutual lending and borrowing
d) All these


251) A need for Regulations on Risk management is more important due   to:
a) The process of deregulation increased the competition which enhances more Risk.
b)Competition also promoted globalization
c) Risk controls are necessary for maintaining level playing field.
d) All these


252) The Regulations on Risk management at international level have been taken up   by:
a) World Bank
b) Basel Committee on Banking supervision
c) Both (a) and (b)
d) None of these


253) Basel Committee on Banking supervision works  under:
a) ADB
b) Bank for International Settlement
c) World Bank
d) International Finance Corporation


254) The modus operandies of Basic committee on Banking supervision  are:
a) It is instrumental in standardizing bank regulations across  jurisdictions.
b) It defines the role of regulations
c) The committee meets 4 times in the year
d) All these


255) When was the Basel accord took place in post deregulation era:
a) 1988
b) 1991
c) 1975
d) 1972


256) 1988 Basel Accord was enforced  in:
a) G-10 Countries in 1992
b) Asian Countries in 1991
c) At International Level in 1988
d) none of these


257) Which of the following tier-1 of core capital  consists?
a) Equity
b) Disclosed Reserves
c) (a) and (b) both,
d) None of these


258) Tier-2 or supplementary capital consists:
a) Undisclosed Reserves
b) Assets Revaluation Reserve
c) General Provisions
d) All these


259) Which of the followings is not included in tier-2 capital of a    Bank?
a) Reserves for bad and doubtful debts
b) Paid up capital
c) Hybrid capital instrument
d) Subordinated Debt

260)" The amendment in 1988 Basel Accord in 1996 basically focused on:
a) Explicit capital cushion for the price Risk to which Banks are   exposed
b) Tier-I capital
c) Both (a) and (b)
d) None of these


261) 1996 Basel Accord amendment was implemented in:
a) 1996
b) 1998
c) 1997
d) 2000


262) The salient features of 1996 Basel Accord  are:
a) To allow banks to use proprietary in house models for measurement of market  Risk
b) Banks must compute value at Risk daily
c) Banks to use back testing
d) All these


263) Which of the followings is not the feature of 1996 Basel   Accord?
a) Tier-3 capital by issuing short term subordinated debt
b) Amendment to Tier-1 capital
c) To implement standardized approach using the Building Block  Approach
d) Banks to segregate trading book and mark to market  portfolios.


264) Which of the followings are basic principles of Basel Accord to control International supervisory coverage?
a) No foreign Bank should escape  supervision
b) Supervision should be adequate
c) Both (a) and (b)
d) None of these


265) The 1988 Basel Accord was revised keeping in view the following   objectives:
a) To strengthen the international Banking system.
b) To adopt strong Risk management practices.
c) To maintain consistency in capital adequacy practices
d) All these


266) The Revised Basel II Accord has been released  on:
a) 26.6.2004
b) 1.12.2003
c) 15.3.2002
d) None of these


267) The main features of revised Basel II Accord  are:
a) More Risk sensitive capital requirement.
b) Risk treatment on securitization
c) It provides different options for determining capital requirement for credit and operational Risk.
d) All   these


268) Which of the followings is not true regarding revised Basel II   Accord?
a) Capital requirement under new Accord is the  minimum
b) Capital requirement includes liquidity Risk
c) It promotes stronger Risk management practices
d) All these


269) Minimum capital requirement is:
a) Capital for Credit Risk
b) Capital for Market Risk
c) Capital for Operational Risk
d) All these


270) Capital for credit Risk should be measured based on following Approaches:
a) Standardized Approach
b) Internal Rating Based Foundation Approach
c) Internal Rating based Advanced Approach
d) All these


271) Capital of market Risk be measured  through:
a) Maturity Method
b) Duration Method
c) Internal Models Method
d)All  these


272) Capital for operational Risk can be measured by  adopting:
a) Basic Indicator Approach
b) Standardised Approach
c) Advanced Measurements Approach
d) All these


273) Supervisory Revenue process under Basel II Accord  consists:
a) Risk Assessment Evaluation
b) Maintenance of minimum capital
c) Ensuring soundness and integrity of Bank's internal process to assess capital adequacy
d) All the above


274) According to Basel II Revised Accord Market discipline focuses   on:
a) More disclosures
b) Core disclosures and supplementary disclosure
c) Half yearly disclosures
d) All these


275) According to revised Basel II Accord, capital requirement will be   determined:
a) Minimum Capital Ratio (8%)
b) Above  (a) should be  multiplied by credit Risk plus market Risk plus operational Risk.
c)  Only (a) of the above 
d) All  these


276) Capital charge for credit Risk under standardized approach has the following   features:
a) It has fixed Risk weights corresponding to each supervisory  category
b) Banks to use external credit assessments to enhance Risk  sensitivity.
c) The Risk weights are differentiated based on external credit  assessment
d) All the above


277) The Standardised Approach to capital charge for credit Risk focuses on:
a) Loans considered as past due should have a Risk weight of 150 per cent.
b) Uniform weight of 57 per cent on specified  portfolios
c) Lower Risk weights for retail exposures
d) All these


278) The features of Internal Rating Based Approach  are:
a) It is innovative approach to measure capital requirement for credit  Risk
b) It complies the capital requirement of each exposure directly before computing the Risk  weighted assets
c) Capital charges are computed based on probability of default, loss given the default and exposure at default
d) All these


279) The conditions under internal rating based approach  are:
a) It does not allow individual Bank to determine the elements for calculation of capital requirement.
b) Capital charges are determined through the combinations of quantitative  inputs
c) It stresses on Banks internal assessment of key Risk drivers as primary inputs to the capital calculations
d) All these


280) Under Internal Rating Based Approach the Risk weights are calculated on the following parameters:
a) Probability of default by Borrower over a given time  horizon.
b) Loss exposure if default occurs.
c) Remaining economic maturity of the exposure
d) All these


281) According to revised Basel II Accord the supervisory review process should focus on:
a) Sound Capital Assessment 
b) Proper Monitoring and Reporting
c) Frequent Internal Control Review
d) All these


282) The principle 2 of supervisory review process of Basel 11 Accord specifies on:
a) The supervisors should ensure compliance of regulatory capital  ratios.
b) Supervisors should initiate appropriate action if the results are not satisfied.
c) Both (a) and (b)
d) None of these


283) Effective supervision can be achieved through:
a) On site inspections b) off site review
c) review of work done by external auditors
d) All these


284) How many principles supervisory review process have under Basel II Accord?
a) 2
b) 3
c) 4
d) 8


285) The disclosure norms under market discipline should focus  on:
a) Disclosure will defined on legal authority and accounting standards of each   country.
b) Disclosure norms should match with internal financial reporting  standards
c) Both (a) and (b)
d) None of these


286) Capital charge for credit Risk requires inputs under Advanced Internal Rating Based Approach.
The inputs are provided by:
a) Bank
b) Supervisor
c) Basel committee on Banking Supervision 
d)-All these


287) Basel I was modified to link the Risk with capital   because:
a) Credit Risk assessment under Basel I was not risk  sensitive
b) It promotes financial decision making on the basis of regulatory  constraints
c) It did not recognize the role of credit Risk mitigant
d) All these


288) The Basel 11 Accord is based on following  pillars:
a) Minimum Capital requirement
b) Supervisory Review Process
c) Market Discipline
d) All these


289) Which of the followings is most relevant to Risk management process in Banks?
a) Supervision of large Borrowed Accounts
b) Asset Liability Management
c) Management of non-performing Assets
d) All these

Answer Sheet-

1	D	2	D	3	D	4	A	5	B	6	D	7	D	8	D	9	D	10	A
11	D	12	D	13	B	14	D	15	C	16	D	17	B	18	D	19	D	20	D
21	D	22	A	23	D	24	D	25	D	26	D	27	D	28	C	29	D	30	D
31	D	32	B	33	D	34	D	35	D	36	A	37	D	38	B	39	D	40	D
41	D	42	D	43	D	44	D	45	D	46	D	47	A	48	B	49	D	50	A
51	D	52	D	53	D	54	D	55	D	56	B	57	D	58	C	59	A	60	B
61	A	62	A	63	B	64	A	65	C	66	D	67	A	68	D	69	D	70	D
71	C	72	D	73	D	74	D	75	D	76	B	77	D	78	B	79	D	80	D
81	D	82	D	83	D	84	D	85	D	86	D	87	D	88	D	89	B	90	D
91	D	92	A	93	D	94	D	95	D	96	D	97	D	98	D	99	D	100	D
101	D	102	D	103	D	104	D	105	D	106	D	107	D	108	C	109	D	110	D
111	D	112	D	113	A	114	D	115	D	116	D	117	D	118	D	119	C	120	D
121	D	122	D	123	D	124	D	125	D	126	D	127	D	128	D	129	D	130	D
131	D	132	A	133	A	134	C	135	C	136	B	137	C	138	B	139	D	140	D
141	D	142	D	143	A	144	C	145	D	146	D	147	D	148	D	149	D	150	D
151	D	152	D	153	A	154	D	155	C	156	D	157	D	158	D	159	D	160	D
161	D	162	D	163	D	164	B	165	D	166	C	167	D	168	D	169	D	170	D
171	C	172	D	173	B	174	C	175	D	176	D	177	D	178	D	179	D	180	D
181	D	182	D	183	B	184	D	185	A	186	D	187	B	188	A	189	A	190	A
191	A	192	D	193	D	194	D	199	D	200	D	201	C	202	D	203	D	204	D
205	D	206	D	207	B	208	D	209	D	210	D	211	D	212	D	213	D	214	D
215	D	216	D	217	C	218	A	219	D	220	D	221	D	222	D	223	D	224	A
225	D	226	C	227	D	228	A	229	D	230	D	231	D	232	D	233	A	234	B
235	A	236	D	237	D	238	C	239	A	240	B	241	B	242	A	243	D	244	B
245	A	246	D	247	C	248	A	249	D	250	A	251	D	252	B	253	B	254	D
255	A	256	A	257	C	258	D	259	B	260	A	261	B	262	D	263	B	264	C
265	D	266	A	267	D	268	B	269	D	270	D	271	D	272	D	273	D	274	D
275	B	276	D	277	D	278	D	279	D	280	D	281	D	282	C	283	D	284	C
285	A	286	A	287	D	288	D	289	B