Test 1056

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Subject: Risk Management in Banking and Insurance

Total Number of Question: 40

Time: 41 Minutes

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Which of the following is NOT a key component of risk management?

Risk identification

Risk assessment

Risk elimination

Risk mitigation

None

Which risk type arises due to changes in government policies or regulations?

Market risk

Credit risk

Political risk

Operational risk

None

Which of the following best defines systematic risk?

Risk specific to a single asset or company

Risk that affects the entire market

Risk due to fraud or human error

Risk that can be eliminated through diversification

None

Which financial institution plays a crucial role in risk regulation in India?

SEBI

IRDAI

RBI

Ministry of Finance

None

Which of the following is NOT a pillar of Basel III?

Minimum capital requirements

Supervisory review process

Market discipline

Corporate social responsibility

None

What is the primary cause of credit risk?

Interest rate fluctuations

Customer default on loans

Market volatility

Cybersecurity breaches

None

A credit rating agency evaluates:

Market risk of a stock

The creditworthiness of borrowers

Operational efficiency of banks

Liquidity ratios of companies

None

Which of the following is a common tool for managing credit risk?

Collateral

Derivatives

Foreign exchange reserves

Regulatory capital

None

Which of the following is NOT a type of credit risk?

Default risk

Counterparty risk

Liquidity risk

Country risk

None

10.

Which measure helps in reducing credit risk in banking?

Securitization

Increasing lending rates

Reducing loan approvals

Avoiding long-term loans

None

11.

Which of the following instruments can be used to hedge market risk?

Options

Insurance policies

Term deposits

Letters of credit

None

12.

Which risk metric is commonly used in assessing market risk?

Credit score

Value at Risk (VaR)

Loan-to-Value ratio

Combined ratio

None

13.

What is the impact of an increase in interest rates on bond prices?

Bond prices increase

Bond prices remain constant

Bond prices decrease

Bond prices become volatile

None

14.

A situation where an asset cannot be easily sold without a significant loss is an example of:

Credit risk

Liquidity risk

Market risk

Reinvestment risk

None

15.

Which of the following is NOT an example of market risk?

Interest rate risk

Equity price risk

Exchange rate risk

Cybersecurity risk

None

16.

Which of the following is an example of underwriting risk?

Loss due to fraudulent claims

Loss due to interest rate changes

Loss due to operational failures

Loss due to reinsurance default

None

17.

What is the purpose of risk pooling in insurance?

To increase profit margins

To spread risk across multiple policyholders

To reduce underwriting expenses

To lower premium costs

None

18.

Reinsurance is primarily used for:

Increasing profit

Reducing insurance claims

Transferring risk to another insurer

Increasing insurance premiums

None

19.

Moral hazard in insurance occurs when:

An insurer fails to assess risk properly

A policyholder engages in riskier behavior due to coverage

A natural disaster increases claims

An insurer refuses to pay claims

None

20.

Which regulatory body oversees insurance companies in India?

RBI

SEBI

IRDAI

PFRDA

None

21.

Cyber risk is primarily associated with:

Physical security threats

Data breaches and cyberattacks

Environmental hazards

Reputational damage only

None

22.

What is the primary objective of business continuity planning (BCP)?

Increasing market share

Ensuring critical operations continue during a crisis

Reducing operational costs

Enhancing customer loyalty

None

23.

A phishing attack is an example of:

Market manipulation

Cyber fraud

Political risk

Credit risk

None

24.

Which of the following best describes operational risk?

Risk of loss due to employee fraud, system failures, or legal issues

Risk associated with investment returns

Risk due to government policy changes

Risk arising from currency fluctuations

None

25.

What is the purpose of stress testing in risk management?

Assess employee performance

Evaluate a financial institution’s resilience under adverse conditions

Predict stock market fluctuations

Measure insurance policyholder behavior

None

26.

Which risk management technique transfers risk to a third party?

Hedging

Risk retention

Insurance

Diversification

None

27.

Which of the following is a limitation of risk diversification?

It eliminates risk completely

It increases overall risk exposure

It may not be effective during systemic crises

It is only applicable to credit risk

None

28.

Which type of derivative contract is commonly used to hedge interest rate risk?

Options

Futures

Swaps

Forwards

None

29.

Which of the following is NOT a component of market risk?

Interest rate risk

Liquidity risk

Foreign exchange risk

Commodity price risk

None

30.

Which financial instrument provides a right but not an obligation to buy/sell an asset?

Forward contract

Futures contract

Option contract

Swap contract

None

31.

Which of the following risk metrics measures potential maximum loss at a given confidence level?

Net Present Value (NPV)

Value at Risk (VaR)

Standard deviation

Return on Investment (ROI)

None

32.

What is the primary purpose of capital adequacy requirements in banking?

To maximize bank profits

To ensure banks can absorb losses and remain solvent

To reduce market risk exposure

To encourage aggressive lending

None

33.

Which Basel framework introduced the concept of Liquidity Coverage Ratio (LCR)?

Basel I

Basel II

Basel III

Basel IV

None

34.

Which credit risk assessment tool is used to evaluate the probability of default?

Credit score

Net Asset Value (NAV)

Beta coefficient

Liquidity ratio

None

35.

Which type of insurance risk arises from natural disasters like earthquakes and floods?

Operational risk

Underwriting risk

Catastrophic risk

Liquidity risk

None

36.

Which risk arises when an insurer underestimates the future claims payable?

Market risk

Liquidity risk

Underwriting risk

Strategic risk

None

37.

Which of the following is NOT a function of reinsurance?

Risk transfer

Capital relief

Profit maximization

Loss stabilization

None

38.

Which of the following is an example of internal operational risk?

Stock market crash

Cyber fraud by employees

Increase in interest rates

Changes in government policies

None

39.

The process of identifying and mitigating cyber threats before they cause harm is called:

Cyber insurance

Cyber resilience

Digital marketing

Risk pooling

None

40.

Which regulation in India governs data protection and cybersecurity for financial institutions?

SEBI Guidelines

IRDAI Cybersecurity Guidelines

RBI’s IT Security Framework

Companies Act, 2013

None

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