Financial Risk Management Operational Risk Framework

Question 1

How is operational risk defined under the Basel framework?

Accepted Answer

The risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events

Answer

The risk of loss due to changes in market prices

Answer

The risk of a counterparty defaulting on an obligation

Answer

The risk of a liquidity shortfall in stress conditions

Question 2

Which of the following is an example of 'internal fraud' as an operational risk event type under Basel?

Accepted Answer

A rogue trader concealing losses by falsifying trade records

Answer

A natural disaster destroying a data center

Answer

A vendor failing to deliver contracted services

Answer

A regulatory fine for mis-selling products

Question 3

What is the 'Basic Indicator Approach' (BIA) for operational risk capital under Basel?

Accepted Answer

Capital = 15% × average annual gross income over the past three years

Answer

Capital = 12% × average total assets over the past five years

Answer

Capital = 8% × average net interest income over the past year

Answer

Capital = 18% × gross income for the current year only

Question 4

What is a 'Key Risk Indicator' (KRI) in operational risk management?

Accepted Answer

A metric that provides early warning signals of increasing operational risk exposure

Answer

A financial ratio used to assess credit quality

Answer

A mandatory regulatory disclosure about internal control failures

Answer

The minimum threshold for reporting operational losses to regulators

Question 5

What is a 'Risk and Control Self-Assessment' (RCSA) in operational risk?

Accepted Answer

A structured process where business units identify and evaluate operational risks and the effectiveness of existing controls

Answer

A regulatory audit of a bank's risk management practices

Answer

An external benchmarking study comparing operational losses across peer banks

Answer

A legal review of vendor contracts for liability exposure

Question 6

What is the purpose of maintaining an 'internal loss database' (ILD) for operational risk?

Accepted Answer

To capture historical operational loss events so they can be analyzed and used to calibrate operational risk capital models

Answer

To store credit default events for capital model calibration

Answer

To report market risk exceptions to senior management

Answer

To archive regulatory correspondence and examination findings