Test 1055

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Subject: Risk Management in Banking and Insurance

Total Number of Question: 40

Time: 41 Minutes

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What is the primary objective of risk management in banking and insurance?

Maximizing profitability

Minimizing operational expenses

Identifying, assessing, and mitigating risks

Increasing customer base

None

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

Credit risk

Market risk

Liquidity risk

Operational risk

None

Which risk arises due to changes in interest rates?

Credit risk

Market risk

Interest rate risk

Liquidity risk

None

Operational risk in banks is associated with:

External fraud

System failures

Internal fraud

All of the above

None

The risk of loss due to a borrower’s failure to make required payments is known as:

Market risk

Credit risk

Operational risk

Liquidity risk

None

Which Basel Accord introduced the concept of risk-based capital requirements?

Basel I

Basel II

Basel III

Basel IV

None

Basel III was introduced in response to which financial crisis?

1997 Asian Financial Crisis

2001 Dot-com bubble

2008 Global Financial Crisis

2012 European Debt Crisis

None

The Capital Adequacy Ratio (CAR) is used to measure:

Market risk

Credit risk

Financial stability

Liquidity position

None

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

Leverage ratio

Liquidity coverage ratio

Operational risk weightage

Dynamic provisioning

None

10.

In banking, stress testing is a technique used for:

Evaluating investment portfolios

Assessing potential risks under adverse conditions

Determining creditworthiness of customers

Calculating Net Present Value (NPV)

None

11.

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

Underwriting risk

Actuarial risk

Reputational risk

Reinsurance risk

None

12.

Moral hazard in insurance arises due to:

Policyholder’s lack of information

Insufficient risk assessment

Policyholder engaging in riskier behavior post-insurance

Overestimation of risk by the insurer

None

13.

What is the primary function of reinsurance?

To provide additional insurance policies

To transfer part of the risk from one insurer to another

To increase premium collection

To regulate insurance companies

None

14.

Which of the following is an example of operational risk in insurance?

Incorrect premium pricing

Poor underwriting standards

System failure leading to data loss

All of the above

None

15.

What is the role of an actuary in insurance risk management?

Selling insurance policies

Underwriting risks

Calculating premiums and reserves

Handling claims

None

16.

Value at Risk (VaR) is used to measure:

Expected loss in normal market conditions

Probability of default

Economic capital requirements

Expected loss under extreme scenarios

None

17.

Which risk measure considers extreme but possible losses?

VaR

Conditional VaR (CVaR)

Expected Shortfall

Both b) and c)

None

18.

What is the primary function of hedging in risk management?

Maximizing profits

Reducing exposure to risk

Enhancing market share

Increasing liquidity

None

19.

Which financial instrument is commonly used for hedging interest rate risk?

Stocks

Bonds

Interest rate swaps

Mutual funds

None

20.

Which approach is used by banks to calculate capital requirements for operational risk under Basel III?

Standardized Approach

Basic Indicator Approach

Advanced Measurement Approach

All of the above

None

21.

Which regulatory body oversees banking risks in India?

SEBI

IRDAI

RBI

PFRDA

None

22.

IRDAI regulates which sector in India?

Banking

Insurance

Mutual Funds

Stock Markets

None

23.

Which act governs insurance regulation in India?

Banking Regulation Act, 1949

Companies Act, 2013

Insurance Act, 1938

SEBI Act, 1992

None

24.

Which international organization sets banking risk standards globally?

World Bank

BIS (Bank for International Settlements)

IMF

WTO

None

25.

Which of the following is NOT a risk management principle?

Risk diversification

Risk retention

Risk elimination

Risk transfer

None

26.

Which risk management technique involves spreading investments to reduce risk exposure?

Hedging

Diversification

Speculation

Risk retention

None

27.

Which financial instrument is commonly used to hedge foreign exchange risk?

Credit default swaps

Forward contracts

Debentures

Equity shares

None

28.

The process of securitization in risk management primarily helps in reducing

Operational risk

Credit risk

Market risk

Liquidity risk

None

29.

Which of the following statements about risk retention is TRUE?

It involves transferring risk to another party.

It means accepting the risk and covering potential losses internally.

It is the most effective way to manage market risk.

It is used primarily in the derivatives market

None

30.

Which risk management tool provides compensation to firms in case of a loss?

Insurance

Futures contracts

Risk pooling

Securitization

None

31.

Which of the following is an example of market risk?

A borrower defaulting on a loan

A stock price falling due to economic downturn

A cyber attack on a bank’s IT system

A bank’s employee engaging in fraud

None

32.

Which is NOT a technique used to mitigate market risk?

Hedging

Diversification

Portfolio optimization

Underwriting

None

33.

Duration analysis is a technique used to measure:

Credit risk

Interest rate risk

Liquidity risk

Insurance underwriting risk

None

34.

Which regulatory requirement aims to ensure banks hold sufficient liquid assets?

Capital Adequacy Ratio

Liquidity Coverage Ratio (LCR)

Net Interest Margin (NIM)

Return on Assets (ROA)

None

35.

Which risk management metric is used to estimate potential loss under extreme market conditions?

Standard deviation

Expected loss

Stress testing

Alpha coefficient

None

36.

Which of the following is considered an emerging risk in the banking sector?

Cybersecurity threats

Exchange rate fluctuations

Credit defaults

Liquidity mismatches

None

37.

Which type of risk arises due to technological failures or cyber-attacks?

Liquidity risk

Reputational risk

Cyber risk

Credit risk

None

38.

Phishing is an example of which type of cybersecurity risk?

Malware attack

Social engineering attack

Distributed Denial of Service (DDoS)

Insider attack

None

39.

Which framework provides guidelines for cybersecurity in financial institutions?

Basel III

ISO 27001

IFRS 9

Solvency II

None

40.

The main objective of risk governance in financial institutions is to:

Maximize short-term profits

Ensure regulatory compliance and risk control

Reduce competition in the market

Focus solely on operational efficiency

None

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