Risk Management in Banks Multiple Choice Questions and Answers

1 When a bank borrower, or counter party, fails to meet its payment obligations regarding the terms agreed with the bank, it is called

A Market Risk

B Operational risk

C Liquidity risk

D Credit Risk

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Answer: Credit Risk

2 When a bank chooses the wrong strategy or follow a long-term business strategy which might lead to its failure, it is called

A Credit risk

B Operational risk

C Market risk

D Business risk

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Answer: Business risk

3 The Yield to Maturity of a bond is the same as:

A The present value of the bond

B The future value of the bond

C The bonds internal rate of return

D None of these

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Answer: The bonds internal rate of return

4 Choose from the following a symptom which is not relating to “Over Trading”.

A Cash shortage

B High inventory turnover ratio

C Low current ratio

D Low inventory turnover ratio

View Answer

Answer: Low inventory turnover ratio

5 Choose a sentence which speaks inappropriately about earning per share (EPS).

A It indicates the net profit earned per share

B It influences dividend policy of the firm

C It does not influence the share holding pattern of the company

D It does not influence the market price of the share

View Answer

Answer: It does not influence the market price of the share

6 Sources of financing project cost excludes:

A Trade Credit

B Leasing

C Subsidy

D Deferred Credit

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Answer: Trade Credit

7 Cash can be conserved by resorting to:

A Best credit terms with suppliers

B Maximum quantity of stock

C Minimum level of creditors

D All of these

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Answer: Best credit terms with suppliers

8 When there is a financial loss to bank arising from legal suits filed against the bank or by a bank for applying a law wrongly, it is called

A Systematic risk

B Equity risk

C Market risk

D Legal Risk

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Answer: Legal Risk

9 When the actions can lead to the entire financial system coming to a standstill, it is called

A Market risk

B Equity risk

C Business risk

D Systematic risk

View Answer

Answer: Systematic risk

10 What is the risk called when one bank makes the decision about how much risk to take, while someone else (like government) bears the costs if things go badly?

A Systematic risk

B Equity risk

C Moral Hazard

D Market risk

View Answer

Answer: Moral Hazard

11 The effect of purchasing power or inflation on present value is important because :

A It increases the real value of cash flows received in the future

B It reduces the real value of cash flows received in the future

C It has no effect on real value of cash flow received in the future

D None of these

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Answer: It reduces the real value of cash flows received in the future

12 If a company revaluates its fixed assets, the current ratio of the company will:

A Remain unaffected

B Improve if assets are revalued upward

C Improve if assets are revalued downwards

D Undergo change only if liabilities are remaining constant

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Answer: Remain unaffected

13 Tangible net worth is calculated as:

A Capital + Reserves – Fictitious Assets and intangible assets

B Capital + Reserves

C Capital + Reserves – Intangible Assets

D Capital + Fictitious Assets + Reserves – Intangible assets

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Answer: Capital + Reserves – Fictitious Assets and intangible assets

14 A uniform discount rate cannot be applied for comparing different type of investments e.q. building property v/s PPF because of:

A Liquidity

B Risk

C Return difference

D None of these

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Answer: Return difference

15 A researcher chooses a Sample by using a Sampling frame and taking the item that corresponds to the nth number in the list. This procedure is called:

A Systematic Sampling

B Simple Random Sampling

C Quota Sampling

D Stratified Sampling

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Answer: Systematic Sampling

16 When the risk of losses in on- or off-balance sheet positions arise from movement in market prices, it is called

A Liquidity risk

B Systemic risk

C Liquidity risk

D Market Risk

View Answer

Answer: Market Risk

17 When the bank is not able to have enough cash to carry out its day-to-day operations, it is called

A Liquidity risk

B Operational risk

C Systemic risk

D Liquidity risk

View Answer

Answer: Liquidity risk

18 An Asset is :

A Sources of funds

B Use of funds

C Inflow of funds

D None of these

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Answer: Use of funds

19 When bank’s image and public standing is in doubt and leads to public’s loss of confidence in a bank, it is called

A Reputational risk

B Market risk

C Operational risk

D Moral Hazard

View Answer

Answer: Reputational risk

20 If we were studying a sample of 100 students and their examination performance and if the standard deviation of the list of results was say 14, then we could calculated the standard error by :

A We cannot calculate standard error on account of inadequacy of information

B Dividing standard deviation by number of items in the sample

C Dividing the square root of the number of items in the sample by the mean

D None of these

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