Module - B RISK MANAGEMENT

26). the trading book includes all the assets that are marketable, i.e. they can be traded in the market.
Trading book assets are normally not held until maturity and marked to market system is followed and
the difference between market price and book value is taken to profit and loss account.

27). The liquidity risk of banks arises mainly from funding of long term assets by short term liabilities,
thereby making the liabilities subject to rollover or refinancing risk.

28). Liquidity risk is defined as the inability to obtain funds to meet cash flow obligations at a reasonable
rate.

29). Funding risk arises from the need to replace net outflows due to unanticipated withdrawal / non
renewal of deposits (wholesale and retail).

30). First Basel accord was first published in the year: 1988

31). the 1996 amendment to Basel accord has brought in the following component of risk is calculating
capital required by banks: market risk

32). Operational risk was introduced for measurement of capital in the Basel II versions of Basel accord.

33). Basel II accord is structured on 3 numbers of pillars.

34). As per Basel II accord, the 3rd pillar refers to market discipline.

35). Time risk arises from the need to compensate for non receipt of expected inflows of funds i.e.
performing assets turning into non-performing assets.

36). Call risk arises due to crystallization of contingent liabilities. This may also arise when a bank may
not be able to undertake profitable business opportunities when it arises.

37). Interest rate risk is the exposure of a bank’s revenue to adverse movements in interest rates.

38). Interest rate risk refers to potential adverse impact on net interest income or net interest margin or
market value of equity (MVE), caused by changes in market interest rates.

39). A gap or mismatch risk arises from holding assets and liabilities and off balance sheet items with
different principal amounts, maturity dates or reprising dates, thereby creating exposure to unexpected
changes in the level of market interest rates.

40). on what basis duration gap schedule is drawn: based on actual computation of duration of each
asset, liability and OBS items

41). the method of calculating capital requirement of a bank by assigning different risk weights to each
credit exposure is known as standardized approach.
42). The risk that the interest rate of different assets, liabilities and off balance sheet items may changes
in different magnitude is termed as basis risk.