Practice Test Geeks(CRA) Certified Retail Analyst Practice Test
← All CRA Flashcard Decks

Financial Risk Assessment Flashcards

7 cards from real CRA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Financial Risk Assessment flashcards as text

  1. Which metric best captures the potential loss in a portfolio during a market stress event beyond normal volatility?

    Answer: Expected Shortfall (CVaR)

    Expected Shortfall (CVaR) measures average loss beyond the VaR threshold, making it better than VaR for capturing tail risk during stress events.

  2. A bank's loan portfolio has a 1-year probability of default (PD) of 2% and loss given default (LGD) of 45%. What is the expected loss rate?

    Answer: 0.90%

    Expected Loss = PD × LGD = 0.02 × 0.45 = 0.009 = 0.90%.

  3. Which approach to credit risk modeling uses historical default data and transition matrices to estimate future credit migration?

    Answer: CreditMetrics

    CreditMetrics, developed by J.P. Morgan, uses credit migration matrices and historical data to estimate portfolio credit risk across rating transitions.

  4. A financial institution notices that two major trading counterparties are both exposed to the same sovereign debt. This illustrates which type of credit risk concentration?

    Answer: Sectoral concentration risk

    Sectoral concentration risk arises when multiple counterparties share common exposure to the same industry or asset class, amplifying potential correlated defaults.

  5. Under the Basel III framework, the Liquidity Coverage Ratio (LCR) is designed to ensure banks can survive a stress scenario lasting how long?

    Answer: 30 days

    The LCR requires banks to hold enough high-quality liquid assets to cover net cash outflows over a 30-day stress period.

  6. Which financial risk assessment technique simulates thousands of random scenarios to model the distribution of portfolio outcomes?

    Answer: Monte Carlo simulation

    Monte Carlo simulation generates thousands of random scenarios based on assumed distributions to model portfolio risk across a full range of outcomes.

  7. When assessing a company's financial risk, a Debt Service Coverage Ratio (DSCR) below 1.0 indicates what?

    Answer: The company cannot cover debt payments from operating income

    A DSCR below 1.0 means operating income is insufficient to service debt obligations, signaling significant financial distress risk.