126. A board reviews its ERM framework. Consider the following statements. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. ERM is solely the responsibility of the risk department.   No

2. Risk appetite statements guide acceptable risk-taking.   Yes

3. ERM aims to eliminate every risk.   No

4. Risk should be linked to strategy and performance.   Yes

5. ERM considers risks across the whole organisation.   Yes

Correct: N, Y, N, Y, Y difficult Enterprise risk management

(1) No: everyone has responsibilities. (2) Yes. (3) No: the aim is to manage risk to appetite. (4) Yes. (5) Yes.

127. A bank sets credit policy. Consider the following statements. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Credit limits control exposure to one borrower.   Yes

2. Provisioning reflects expected losses.   Yes

3. Concentration to one sector reduces portfolio risk.   No

4. Collateral can reduce loss given default.   Yes

5. Credit risk arises only from loans, never from guarantees.   No

Correct: Y, Y, N, Y, N difficult Credit risk management

(1) Yes. (2) Yes. (3) No: it raises risk. (4) Yes. (5) No: off-balance-sheet items count.

128. A finance director reviews anti-fraud measures. Consider the following statements. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Whistleblowing channels increase the chance of detection.   Yes

2. Segregation of duties is irrelevant in small firms.   No

3. Background checks can reduce hiring risk.   Yes

4. External auditors guarantee that fraud will be discovered.   No

5. Mandatory leave can help detect fraud in sensitive roles.   Yes

Correct: Y, N, Y, N, Y difficult Fraud prevention

(1) Yes. (2) No: compensating controls are needed. (3) Yes. (4) No: audits give reasonable assurance only. (5) Yes.

129. A manufacturer looks at risk transfer. Consider the following statements. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Outsourcing transfers accountability entirely.   No

2. Transferring a risk always removes it.   No

3. Contracts can pass specific risks to suppliers.   Yes

4. Derivatives can transfer market risk.   Yes

5. Insurance transfers financial consequences, not all consequences such as reputation.   Yes

Correct: N, N, Y, Y, Y difficult Risk transfer and sharing

(1) No: accountability remains. (2) No: residual risk remains. (3) Yes. (4) Yes. (5) Yes.

130. A bank manages interest rate risk. Consider the following statements. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Floating-rate assets funded by fixed-rate liabilities have no rate risk.   No

2. Rate rises can reduce the fair value of fixed-rate assets.   Yes

3. A mismatch of repricing dates creates exposure.   Yes

4. Swaps can change fixed exposure into floating.   Yes

5. Interest rate risk affects only banks.   No

Correct: N, Y, Y, Y, N difficult Interest rate risk

(1) No: spreads still change. (2) Yes. (3) Yes. (4) Yes. (5) No: all borrowers and investors are affected.