Free CISI Risk in Financial Services practice questions

Not quite. The answer is C.

Risk is defined as the possible harm associated with a situation, calculated as the product of impact and probability. Loss frequency and share price variance are measures used elsewhere in risk analysis, not the core definition of risk itself. Capital held for contingencies is a response to risk, not its definition.

Not quite. The answer is C.

The BIS serves as a bank for central banks and fosters international monetary and financial cooperation; its customers are central banks and international organisations, not private individuals. Its guidelines have no automatic force in national or international law — countries must choose to implement them through their own legal processes. Deposit insurance is a separate, national-level scheme, not a BIS function.

Not quite. The answer is B.

This is the Basel Committee's standard definition of operational risk. The interest rate/equity/currency description is market risk, and the counterparty payment failure description is credit risk, both of which are separate risk categories. Reputational damage is a possible consequence of an operational risk event, but it is not itself the definition.

Not quite. The answer is D.

Credit risk is specifically the risk of loss caused by a counterparty or issuer failing to meet its obligations. Adverse price movements describe market risk, internal process or system failures describe operational risk, and a shortage of available cash describes liquidity risk, each a distinct risk category covered elsewhere in the syllabus.

Not quite. The answer is A.

Volatility risk is the risk of price movements being more uncertain than usual, and it particularly affects options pricing because increased uncertainty makes options more expensive. Basis risk relates to imperfect hedges rather than pricing uncertainty, and issuer risk and concentration risk are unrelated credit-side concepts.

Not quite. The answer is C.

The nominal return is the return an investment gives unadjusted for inflation, so a 12% interest rate is the nominal return regardless of the inflation rate. Real return strips out inflation, holding period return measures total return over the period held, and the information ratio is an unrelated fund performance measure.

Not quite. The answer is D.

The chapter defines liquidity risk in cash terms: insufficient cash leading to insolvency, expensive borrowing or forced sales below market price. Underperformance against a benchmark is an investment risk concept, a rating downgrade is a credit risk event, and currency loss is a market risk concept, none of which matches the chapter's definition.

Not quite. The answer is A.

The chapter's definition of a model requires theories, techniques or assumptions to transform data into quantitative estimates. A basic spreadsheet performing simple totals, a physical filing system, and an annual leave checklist do not meet this definition, since none of them applies a theoretical or estimation process to data.

Not quite. The answer is A.

Corporate governance is the mechanism that seeks to ensure companies are run in the best long-term interests of their shareholders. Maximising short-term dividends can conflict with long-term shareholder interests, delegation of risk decisions to committees is normal and expected, and governance operates alongside, not instead of, regulatory oversight.

Not quite. The answer is B.

ERM is the discipline of applying risk management to all of a firm's risks so that they are understood and managed both individually and in relation to each other, giving a single firm-wide view. It is not about eliminating risk entirely, since firms always retain some risk in pursuing their objectives; it is broader than a fixed regulatory capital requirement, and it is not confined to the operational risk department alone.