1–20: Fundamentals of Risk

1. Risk in banking refers to:
   A. Certain loss
   B. Uncertain outcome with possible loss
   C. Guaranteed profit
   D. Past performance
   Answer: B

2. The primary objective of risk management is to:
   A. Maximize NPA
   B. Minimize uncertainty and potential losses
   C. Increase expenses
   D. Reduce revenues
   Answer: B

3. Which risk arises due to system failure?
   A. Credit risk
   B. Market risk
   C. Operational risk
   D. Strategic risk
   Answer: C

4. Strategic risk arises due to:
   A. Technology failure
   B. Wrong business decisions
   C. Forex fluctuation
   D. Customer default
   Answer: B

5. Reputation risk arises due to:
   A. NPA
   B. Negative publicity
   C. CRR changes
   D. CASA drop
   Answer: B

6. Residual risk refers to:
   A. Risk eliminated
   B. Risk transferred
   C. Risk remaining after mitigation
   D. Risk without controls
   Answer: C

7. Primary source of market risk:
   A. Interest rate movement
   B. Staff turnover
   C. Legal suits
   D. Customer fraud
   Answer: A

8. Settlement risk arises when:
   A. Counterparty fails to deliver
   B. Branch expansion
   C. Technology upgrade
   D. Audit delay
   Answer: A

9. Liquidity risk means:
   A. Lack of profits
   B. Lack of trained staff
   C. Inability to meet payment obligations
   D. Forex gain
   Answer: C

10. Strategic risk affects:
    A. Vision
    B. Daily transactions
    C. Cash flow
    D. NPAs
    Answer: A

11. Operational loss includes:
    A. Loss from loan default
    B. Trading loss
    C. System malfunction loss
    D. Interest loss
    Answer: C

12. Credit risk arises only when:
    A. Customer pays on time
    B. Customer defaults
    C. CASA increases
    D. Repo decreases
    Answer: B

13. Business risk is related to:
    A. Environmental changes
    B. CRR
    C. SLR
    D. Repo
    Answer: A

14. Interest rate risk is part of:
    A. Operational risk
    B. Market risk
    C. Credit risk
    D. HR risk
    Answer: B

15. Human error is a component of:
    A. Market risk
    B. Operational risk
    C. Credit risk
    D. Business risk
    Answer: B

16. Compliance risk refers to:
    A. Staff shortage
    B. Failing to follow rules
    C. Loan appraisal error
    D. System downtime
    Answer: B

17. Capital risk refers to:
    A. Loss of deposits
    B. Risk of insufficient capital
    C. High profits
    D. NPA classification
    Answer: B

18. Fiduciary risk relates to:
    A. Treasury losses
    B. Misuse of entrusted funds
    C. HR conflict
    D. CASA
    Answer: B

19. Diversifiable risk =
    A. Market risk
    B. Systematic risk
    C. Unsystematic risk
    D. Global risk
    Answer: C

20. Non-diversifiable risk =
    A. Unsystematic
    B. Idiosyncratic
    C. Systematic
    D. Personal risk
    Answer: C

21–40: Credit Risk

21. Credit risk primarily arises due to:
    A. Fraud
    B. Market crash
    C. Borrower default
    D. System upgrade
    Answer: C

22. Credit risk components include:
    A. PD, LGD, EAD
    B. LCR, NSFR
    C. CRR, SLR
    D. FRA, IRS
    Answer: A

23. Exposure at default means:
    A. Future exposure
    B. Amount outstanding at default
    C. Paid loans
    D. Collateral value
    Answer: B

24. LGD means:
    A. Loss after collateral
    B. Loan given daily
    C. Low grade deposit
    D. Largest guarantee department
    Answer: A

25. High PD means:
    A. High credit risk
    B. Low risk
    C. More CASA
    D. More equity
    Answer: A

26. Risk-based pricing means:
    A. Same rate for all
    B. Higher rate for higher risk customers
    C. Lower rate for high risk
    D. Random rate
    Answer: B

27. Collateral reduces:
    A. PD
    B. LGD
    C. RWA
    D. CASA
    Answer: B

28. Credit concentration increases:
    A. Diversification
    B. Portfolio risk
    C. CASA
    D. Treasury gains
    Answer: B

29. NPA leads to:
    A. Higher provisions
    B. More profit
    C. More LCR
    D. More branches
    Answer: A

30. Default risk is part of:
    A. Credit risk
    B. Market risk
    C. HR risk
    D. Liquidity risk
    Answer: A

31. Expected loss formula:
    A. PD × EAD × LGD
    B. PD + LGD
    C. EAD / LGD
    D. PD × LGD
    Answer: A

32. Credit rating helps in:
    A. Loan pricing
    B. HR training
    C. IT upgrade
    D. Looking at NPA
    Answer: A

33. CIBIL score indicates:
    A. Income
    B. Identity
    C. Creditworthiness
    D. Risk-free rate
    Answer: C

34. Risk premium means:
    A. Extra interest for safe customers
    B. Extra interest for risky customers
    C. Discount for risky customers
    D. Random pricing
    Answer: B

35. Collateral shortfall leads to:
    A. Higher LGD
    B. Lower EAD
    C. Lower PD
    D. Higher CASA
    Answer: A

36. High credit risk forces banks to:
    A. Reduce interest rate
    B. Increase interest rate
    C. Lower capital
    D. Increase CASA
    Answer: B

37. Stress test for credit risk analyzes:
    A. Loan performance under worst-case scenario
    B. HR attrition
    C. Basel norms
    D. Forex swap
    Answer: A

38. Concentration limit is fixed by:
    A. RBI
    B. Bank board
    C. Customer
    D. Auditor
    Answer: B

39. Diversification reduces:
    A. Credit spread
    B. Portfolio credit risk
    C. Repo
    D. CRR
    Answer: B

40. Loan review mechanism (LRM) ensures:
    A. Loan appraisal quality
    B. CASA drive
    C. RTGS security
    D. Staff productivity
    Answer: A

41–60: Market Risk

41. Market risk components:
    A. Forex, interest rate, equity, commodity
    B. HR, OB, marketing
    C. Fraud, KYC, AML
    D. CASA, deposit, profit
    Answer: A

42. VaR measures:
    A. Maximum expected loss
    B. Profit
    C. Risk-free rate
    D. NPA
    Answer: A

43. Duration measures:
    A. Interest sensitivity of bond
    B. Maturity
    C. Cash flow
    D. Liquidity
    Answer: A

44. Modified duration used for:
    A. Credit rating
    B. Forecasting interest movement
    C. Inflation
    D. NPA
    Answer: B

45. Equity price risk is part of:
    A. Operational risk
    B. Market risk
    C. Liquidity risk
    D. HR risk
    Answer: B

46. Stop-loss limit controls:
    A. Profit
    B. Maximum loss
    C. HR expenses
    D. NPA
    Answer: B

47. Back-testing validates:
    A. VaR model
    B. HR system
    C. Tax system
    D. Capital
    Answer: A

48. Exchange rate risk arises due to:
    A. Forex rate volatility
    B. Staff turnover
    C. ATM issues
    D. Payment delay
    Answer: A

49. Market risk for HTM securities is:
    A. Zero
    B. High
    C. Small
    D. Dependent on rate
    Answer: A

50. Yield curve inversion means:
    A. Long-term > short-term
    B. Short-term > long-term
    C. Flat rate
    D. Uneven
    Answer: B

51. Capital charge for market risk applies to:
    A. Trading book
    B. Banking book
    C. HR records
    D. CASA
    Answer: A

52. Basis risk arises due to:
    A. Mismatch in benchmark rate movement
    B. Default
    C. Fraud
    D. HR conflict
    Answer: A

53. Bond price & yield relationship:
    A. Same direction
    B. Opposite direction
    C. No relation
    D. Random
    Answer: B

54. Beta measures:
    A. Systematic risk
    B. Liquidity
    C. Profit
    D. CASA
    Answer: A

55. VAR 99% confidence means probability of loss beyond VAR is:
    A. 0.01
    B. 0.99
    C. 1
    D. 10
    Answer: A

56. Historical simulation method uses:
    A. Past returns
    B. Future forecasts
    C. Survey data
    D. RBI guidelines
    Answer: A

57. ZCB is more sensitive to:
    A. Duration
    B. HR policies
    C. NPA
    D. LCR
    Answer: A

58. RAROC =
    A. Return adjusted for risk
    B. Repo adjusted
    C. Basel ratio
    D. CRR ratio
    Answer: A

59. High volatility increases:
    A. Market risk
    B. CASA
    C. Staff motivation
    D. Audit risk
    Answer: A

60. Overnight positions increase:
    A. HR risk
    B. Settlement risk
    C. Forex exposure
    D. Salary cost
    Answer: C

61–80: Operational Risk

61. Operational risk arises from:
    A. People
    B. Processes
    C. Systems
    D. All of the above
    Answer: D

62. Basel defines operational risk as risk of:
    A. Profit
    B. Loss from failed processes
    C. ATM cash shortage
    D. Staff promotion
    Answer: B

63. BCP ensures:
    A. Business continuity during disruption
    B. Audit
    C. Tax compliance
    D. Training
    Answer: A

64. KRI monitors:
    A. Risk indicators
    B. Profit
    C. Balance sheet
    D. Marketing
    Answer: A

65. System failure is:
    A. Credit risk
    B. Market risk
    C. Operational risk
    D. Liquidity risk
    Answer: C

66. Fraud risk increases due to:
    A. Weak internal control
    B. High CASA
    C. High profit
    D. Good training
    Answer: A

67. Shredding old documents reduces:
    A. IT cost
    B. Information security risk
    C. Forex cost
    D. Asset cost
    Answer: B

68. Cyber risk is part of:
    A. Market
    B. Operational
    C. Treasury
    D. HR
    Answer: B

69. Maker-checker concept prevents:
    A. Forex loss
    B. Fraud
    C. Interest rate risk
    D. NPA
    Answer: B

70. Outsourcing increases:
    A. Control
    B. Cost risk
    C. Liquidity
    D. Basel
    Answer: B

71. KYC non-compliance leads to:
    A. AML risk
    B. Profit
    C. CASA
    D. Repo
    Answer: A

72. Root cause analysis used for:
    A. Fraud detection
    B. ATM cash management
    C. Operational failure
    D. Staff transfer
    Answer: C

73. COBIT relates to:
    A. IT governance
    B. Taxes
    C. Treasury
    D. HR
    Answer: A

74. Incident reporting helps in:
    A. Trend analysis
    B. CASA
    C. Treasury
    D. Liquidity
    Answer: A

75. Outsourcing risk includes:
    A. Dependency
    B. Data leakage
    C. Quality issue
    D. All of the above
    Answer: D

76. Internal control prevents:
    A. Fraud
    B. Market risk
    C. Inflation
    D. Repo
    Answer: A

77. IT downtime leads to:
    A. Market risk
    B. Operational risk
    C. NPA
    D. Liquidity
    Answer: B

78. Key reason for operational loss:
    A. Lack of training
    B. CASA
    C. HTM
    D. CRR
    Answer: A

79. Segregation of duties reduces:
    A. Fraud
    B. Profit
    C. CSR
    D. NPA
    Answer: A

80. Cyber-attacks mainly cause:
    A. Operational risk
    B. Credit risk
    C. Forex risk
    D. HR risk
    Answer: A

81–100: Liquidity, ALM, Basel & Advanced Topics

81. Liquidity risk arises due to:
    A. Insufficient cash flows
    B. HR attrition
    C. Forex gain
    D. Capital increase
    Answer: A

82. LCR ensures:
    A. Bank survives 30-day stress
    B. Profit increases
    C. Repo stable
    D. CASA increases
    Answer: A

83. NSFR ensures:
    A. 1-year liquidity stability
    B. Credit growth
    C. Basel compliance
    D. Tax savings
    Answer: A

84. ALM monitors:
    A. Maturity mismatch
    B. HR
    C. IT
    D. NPA
    Answer: A

85. Gap analysis is used for:
    A. Liquidity & interest rate risk
    B. HR attrition
    C. Fraud
    D. Profit
    Answer: A

86. Negative gap means:
    A. RSA > RSL
    B. RSL > RSA
    C. CASA is high
    D. Forex exposure
    Answer: B

87. Basel III strengthens:
    A. Capital
    B. Liquidity
    C. Leverage
    D. All of the above
    Answer: D

88. KYC & AML help reduce:
    A. Reputational risk
    B. Credit risk
    C. Market risk
    D. HR risk
    Answer: A

89. ICAAP stands for:
    A. Internal capital adequacy assessment process
    B. Internal customer account process
    C. Interest computation process
    D. Investment capital alignment process
    Answer: A

90. Stress testing is part of:
    A. Pillar 2
    B. Pillar 1
    C. Pillar 3
    D. CRR
    Answer: A

91. Pillar 3 deals with:
    A. Disclosure
    B. Capital
    C. Supervision
    D. HR
    Answer: A

92. Risk appetite is approved by:
    A. Manager
    B. Board
    C. Auditor
    D. Customer
    Answer: B

93. RWA increases when:
    A. Risk weight increases
    B. Capital increases
    C. Treasury gains
    D. CASA increases
    Answer: A

94. Capital buffer protects against:
    A. Losses during stress
    B. Extra profit
    C. Extra CASA
    D. Repo changes
    Answer: A

95. Leverage ratio =
    A. Tier 1 capital / exposure
    B. Tier 2 capital / deposits
    C. CET1 / profit
    D. NPA / capital
    Answer: A

96. Risk register records:
    A. Identified risks
    B. Staff strength
    C. CASA
    D. ATMs
    Answer: A

97. Sensitivity analysis tests:
    A. One variable at a time
    B. All variables
    C. Staff behavior
    D. Taxes
    Answer: A

98. Scenario analysis tests:
    A. Multiple variable change
    B. Only one variable
    C. Rating
    D. Ledger
    Answer: A

99. Hedging reduces:
    A. Market risk
    B. HR risk
    C. IT risk
    D. Tax
    Answer: A

100. Most important risk in banks:
     A. Credit risk
     B. HR risk
     C. IT risk
     D. Customer risk
     Answer: A