CBA Risk Management 1 — Questions and Answers
Question 1: What is the primary objective of risk management in banking?
- To increase advertising budget
- To improve employee retention
- To minimize potential losses and ensure stability (Correct answer)
- To attract new shareholders
Correct answer: To minimize potential losses and ensure stability
Risk management aims to identify, assess, and mitigate potential threats that could affect a bank's financial stability and operations.
Question 2: Which of the following is considered a market risk?
- Employee turnover
- Cybersecurity breach
- Change in interest rates (Correct answer)
- Internal policy violation
Correct answer: Change in interest rates
Market risk arises from fluctuations in market variables such as interest rates, exchange rates, and stock prices.
Question 3: What is the role of stress testing in risk management?
- To estimate employee satisfaction
- To measure actual performance
- To evaluate resilience under adverse scenarios (Correct answer)
- To test new banking software
Correct answer: To evaluate resilience under adverse scenarios
Stress testing evaluates how a bank would perform under extreme but plausible adverse conditions, helping to prepare and plan.
Question 4: Which type of risk is associated with borrower default?
- Liquidity risk
- Operational risk
- Credit risk (Correct answer)
- Reputation risk
Correct answer: Credit risk
Credit risk refers to the possibility that a borrower may fail to fulfill financial obligations, impacting the lender's earnings.
Question 5: How does diversification help in risk management?
- Increases return on equity
- Eliminates all risks
- Reduces risk by spreading exposure (Correct answer)
- Minimizes tax liabilities
Correct answer: Reduces risk by spreading exposure
Diversification spreads investments across various assets, reducing exposure to any single source of risk.
Question 6: Which department typically oversees enterprise risk management in a bank?
- Compliance department
- Human resources department
- Risk management department (Correct answer)
- Customer service department
Correct answer: Risk management department
The risk management department is responsible for identifying and controlling risks across the entire organization.
CBA Risk Management 1
What is the primary objective of risk management in banking?