Portfolio Management MCQ - Portfolio Management Section 2

36 Bank XYZ has invested 80% of its portfolio in real estate in the beginning of 2012. In 2013, real estate prices fall considerably. Given the unpredictable nature of this event, which of the following statements is least likely accurate about the action taken by a good risk manager? A good risk manager:

A
would not have predicted significant defaults on the bank’s real estate securities.
B
would actively help the bank decide on the exposure it should have in real estate securities and quantify the potential losses of such a crisis.
C
is expected to prepare the organization for such a crisis through stress testing and scenario analysis.

The other two statements are what a good risk manager would do. Even though the real estate crisis was unpredictable, a good risk manager is expected to prepare for such crises. A good risk manager is also expected to continuously report in advance on the potential impact of this sizable risk exposure.

37 The least likely goal of risk management is to:

The definition of risk management includes both defining the level of risk desired and measuring the level of risk taken. Risk management means taking risks actively and in the best, most value-added way possible and is not about minimizing risks.

38 Which of the following statements best describe risk management in the case of individuals? Risk management is:

For individuals, risk management concerns maximizing utility while taking risk consistent with individual’s level of risk tolerance.

39 The process of risk management includes:

Risks need to be defined and measured so as to be consistent with the entity’s chosen level of risk tolerance and target for returns or other outcomes.

40 The element of a risk management framework that sets the overall context for risk management in an organization is:

Governance is the element of the risk management framework that is the top-level foundation for risk management. Although policies, procedures, and infrastructure are necessary to implement a risk management framework, it is governance that provides the overall context for an organization’s risk management.