Group Model Development: Lets Test Your Model Development Skill !!!!

10 Questions | Total Attempts: 193

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Group Model Development: Lets Test Your Model Development Skill !!!! - Quiz

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Questions and Answers
  • 1. 
    Which of the following statement best defines “Model Risk” accurately
    • A. 

      The risk of a model that does not perform the tasks or capture the risks it was designed to.

    • B. 

      The risk of losses due to the failure of a borrower/counterparty to meet its repayment obligation.

    • C. 

      The risk faced due to the movement of macroeconomic factors and interest rate of derivatives.

    • D. 

      The risk of a change in value caused by the fact of actual losses, incurred for inadequate or failed internal processes, people and systems.

  • 2. 
    Risk models provide a framework to assist bank personnel to assess available information and reach decisions in an objective, consistent and efficient manner
    • A. 

      True

    • B. 

      False

  • 3. 
    The basics of risk model development comprised of:
    • A. 

      Design

    • B. 

      Development

    • C. 

      Implementation

    • D. 

      Validation

  • 4. 
    The discriminatory power of a model is typically captured by ...............................
    • A. 

      Accuracy ratio

    • B. 

      Model stability

    • C. 

      LGD Parameter Assessment

    • D. 

      Governance

  • 5. 
    Value At Risk (VAR) defined as .............. from normal market movements within a given a confidence level and holding period.
    • A. 

      Potential Loss

    • B. 

      Potential Gain

    • C. 

      Potential Capital Deficit

    • D. 

      Potential Operating Profit

  • 6. 
    Based on Basel II Capital Adequacy Framework, the risk components to be estimated under the Advanced IRB Approach are:
    • A. 

      Probability of Default

    • B. 

      Operating Profit

    • C. 

      Loss Given Default

    • D. 

      Total Equity

  • 7. 
    Accuracy ratio is a statistical metric to measure the risk-ranking ability and discriminatory power of a factor or model.State the region with perfect discriminatory power.
    • A. 

      1

    • B. 

      2

    • C. 

      3

    • D. 

      None of the above

  • 8. 
    The credit risk components for capital calculation under Advanced Internal Ratings Based (AIRB) approach are Probability of Default (PD), Exposure at Default (EAD) and Loss Given Default (LGD) and Facility Risk Rating (FRR). 
    • A. 

      True

    • B. 

      False

  • 9. 
    Based on Market Risk-Value At Risk(VAR) Methodology,.....................uses a model that takes random numbers as inputs for future asset/portfolio returns/prices. The process is repeated many times (hundreds to thousands of times) to obtain a probability distribution that is then used to calculate the VaR.
    • A. 

      Monte Carlo Simulation

    • B. 

      Historical Simulation (HS)

    • C. 

      Variance

    • D. 

      Covariance

  • 10. 
    What should be the frequency of the model validation
    • A. 

      At least annually

    • B. 

      Once in every 2 years

    • C. 

      Once in every 3 years

    • D. 

      No need to be validated