Test 1058

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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?

Maximizing risk exposure

Identifying, assessing, and mitigating risks

Avoiding all financial activities

Increasing investment risks

None

Which of the following is an example of financial risk?

Cyber attack

Credit risk

Natural disaster

Employee fraud

None

Which of the following risks is considered non-financial?

Liquidity risk

Market risk

Operational risk

Credit risk

None

Which risk arises due to interest rate fluctuations?

Credit risk

Interest rate risk

Legal risk

Reputational risk

None

What is the key characteristic of systematic risk?

It is specific to an individual company

It affects the entire market

It can be eliminated through diversification

is not influenced by economic changes

None

Which of the following strategies helps reduce credit risk?

Ignoring customer credit history

Lending without collateral

Credit risk modeling

Increasing non-performing assets

None

Which type of risk occurs when a borrower defaults on a loan?

Market risk

Liquidity risk

Credit risk

Operational risk

None

Which Basel Accord introduced the concept of capital adequacy ratio?

Basel I

Basel II

Basel III

Basel IV

None

Loan-to-Value (LTV) ratio is primarily used to assess:

Market fluctuations

Credit risk in mortgage lending

Employee fraud

Interest rate movements

None

10.

Which of the following is a key component of credit risk analysis?

Customer income verification

Political risk assessment

Cybersecurity measures

Employee satisfaction

None

11.

What is Value at Risk (VaR) used for?

Measuring credit exposure

Evaluating potential market losses

Reducing tax liabilities

Monitoring employee performance

None

12.

Which of the following is a source of foreign exchange risk?

Fluctuations in stock prices

Changes in exchange rates

Interest rate stability

Increase in tax rates

None

13.

Which financial instrument is commonly used to hedge against market risk?

Mutual funds

Derivatives

Fixed deposits

Treasury bills

None

14.

Which of the following is NOT a market risk?

Currency risk

Commodity price risk

Inflation risk

Cyber risk

None

15.

Which technique is commonly used to reduce market risk?

Concentration of investments

Diversification

Ignoring economic trends

Investing in only one sector

None

16.

Which of the following is an example of operational risk?

System failure in a bank

Decline in stock market index

Increase in lending rates

Foreign exchange volatility

None

17.

Phishing is an example of:

Market risk

Cyber risk

Credit risk

Legal risk

None

18.

What is the primary cause of reputational risk?

High loan approval rates

Negative publicity or unethical practices

Increasing foreign investments

Stable economic policies

None

19.

Which regulatory framework focuses on cybersecurity in Indian banks?

IRDAI Guidelines

RBI IT Security Framework

SEBI Investment Rules

GST Act

None

20.

Which method helps mitigate cyber risks in financial institutions?

Ignoring security threats

Implementing two-factor authentication

Avoiding IT investments

Reducing cybersecurity budgets

None

21.

Liquidity risk arises when:

A bank fails to meet short-term financial obligations

Interest rates remain stable

Foreign investments increase

Stock prices rise

None

22.

Which ratio is commonly used to measure liquidity risk?

Current ratio

Debt-to-Equity ratio

Earnings Per Share

Return on Investment

None

23.

Which risk management strategy helps address liquidity

Maintaining adequate cash reserves

Ignoring regulatory requirements

Investing all funds in illiquid assets

Reducing customer deposits

None

24.

Risk-based supervision (RBS) focuses on:

High-risk areas of financial institutions

Avoiding regulatory scrutiny

Eliminating risk management practices

Increasing speculative investments

None

25.

Which of the following is a key feature of effective risk governance?

Strong internal controls

Eliminating compliance checks

Ignoring risk mitigation strategies

Avoiding risk identification

None

26.

What is the purpose of reinsurance?

To transfer risk from an insurer to another insurer

To increase insurance premiums

To avoid paying claims

To reduce competition among insurers

None

27.

Which type of insurance covers losses from natural disasters?

Life Insurance

Catastrophe Insurance

Motor Insurance

Health Insurance

None

28.

Which of the following is a principle of insurance?

Principle of Indemnity

Principle of Speculation

Principle of Profitability

Principle of Risk Ignorance

None

29.

Which international organization sets global banking risk standards?

World Bank

International Monetary Fund (IMF)

Basel Committee on Banking Supervision (BCBS)

Securities and Exchange Board of India (SEBI)

None

30.

Which of the following is a key requirement under Basel III?

Higher capital adequacy ratio

No need for liquidity reserves

Reduction in regulatory compliance

Eliminating credit risk assessments

None

31.

What is the primary purpose of the Financial Stability and Development Council (FSDC) in India?

Promote stock trading

Ensure financial stability and regulatory coordination

Monitor only banking frauds

Increase inflation rates

None

32.

Stress testing in banks is primarily used to:

Assess the impact of adverse economic conditions

Predict stock market trends

Increase short-term profits

Ignore risk management policies

None

33.

Which of the following is a common method used in stress testing?

Reverse Stress Testing

Random Sampling

Customer Surveys

Profit Maximization Models

None

34.

What is the primary objective of scenario analysis in risk management?

Predict various possible future financial situations

Eliminate financial risks completely

Reduce bank lending activities

Increase non-performing assets (NPAs)

None

35.

Which type of financial risk is linked to climate change?

Environmental Risk

Market Risk

Liquidity Risk

Credit Default Risk

None

36.

Which framework is widely used to assess Environmental, Social, and Governance (ESG) risks?

COSO Framework

Basel Accords

International Financial Reporting Standards (IFRS)

World Economic Forum Guidelines

None

37.

Cyber risk in banking includes threats like:

Phishing and data breaches

Loan defaults

Stock market fluctuations

Increased deposits

None

38.

What is the primary objective of Artificial Intelligence (AI) in risk management?

Enhancing risk identification and fraud detection

Eliminating the need for human intervention

Reducing bank profits

Avoiding regulatory oversight

None

39.

Which of the following promotes a strong risk culture in financial institutions?

Ethical decision-making and accountability

Ignoring regulatory compliance

Avoiding risk management policies

Increasing speculative trading

None

40.

Which ethical principle ensures fair treatment of all financial stakeholders?

Integrity

Speculation

Market Domination

Profit Maximization

None

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