Question #1 of 9 Question ID: 1506474

What is the machine learning terminology for analyzing a dataset with no dependent
variable to estimate or predict?

A) Unsupervised learning.
B) Exploratory learning.
C) Distance learning.
D) Naked learning.

Explanation

The machine learning terminology for analyzing a dataset with no dependent variable to
estimate or predict is unsupervised learning.

(Book 5, Module 89.1, LO 89.a)

Question #2 of 9 Question ID: 1506481

The general role of artificial intelligence in risk management is least likely to involve:

A) measuring risk.
B) assessing risk.
C) mitigating risk.
D) eliminating risk.

Explanation

The general role of AI in operational risk management is to identify, measure, estimate,

assess, and mitigate risk(s). In practice, risk is rarely eliminated but much more likely
mitigated or reduced.

(Book 5, Module 89.1, LO 89.b)

Question #3 of 9 Question ID: 1506475

Which statistical problems can be solved via supervised learning?

A) principal component analysis and regression.
B) clustering and regression.
C) regression, classification, and principal component analysis.
D) classification and regression.

Explanation

Classification and regression statistical problems can be solved via supervised learning.

(Book 5, Module 89.1, LO 89.a)

Question #4 of 9 Question ID: 1506482

In the context of risk management within a financial institution, artificial intelligence (AI) is
least concerned with achieving:

A) more detailed information.

B) reduced compliance costs.
C) more timely information.
D) more accurate information.

Explanation

AI does not specifically strive to provide more detailed information although it may be an
unintended benefit. AI strives to provide more accurate and real-time information on all
types of risks assumed by the financial institution. Some financial institutions invest
considerable amounts in AI to lower their compliance costs.

(Book 5, Module 89.1, LO 89.c)

Question #5 of 9 Question ID: 1506476

Which statistical problems can be solved via unsupervised learning?

A) classification.
B) clustering.
C) classification and clustering.
D) principal component analysis and classification.

Explanation
Clustering follows an unsupervised approach.

(Book 5, Module 89.1, LO 89.a)

Question #6 of 9 Question ID: 1506479

Which of the following items is least likely to be included in a completely automated artificial
intelligence (AI) solution?

A) Decision making based on data testing.

B) Data identification.
C) Data processing.
D) Data testing.

Explanation

A completely AI solution should be automated with reference to data identification, data

testing, and decision-making on the basis of the data tested.

(Book 5, Module 89.1, LO 89.a)

Question #7 of 9 Question ID: 1506477

Which type of regression machine learning specifically zero weights independent variables
with low explanatory power?

A) LASSO regression.
B) Principal component analysis (PCA) regression.
C) Partial least squares regression.
D) Ridge regression.

Explanation

LASSO regression specifically zero weights independent variables with low explanatory
power, while Ridge regression specifically assigns lower weights to variables in a model
that are highly correlated with other variables in a model.

(Book 5, Module 89.1, LO 89.a)

Question #8 of 9 Question ID: 1506480

Which of the following items describes the most significant item to consider when having to
trade in large positions in illiquid markets?

A) Opportunity costs.
B) Bid-ask spreads.
C) Market impact costs.
D) Fixed fees.

Explanation

A significant hedge fund has stated that up to 2/3 of its profit could be lost as a result of
market impact costs when trading in large positions in illiquid markets. Bid-ask spreads
are distinct from market impact costs; the former are a function of market liquidity—the
higher the spread, the more illiquid the market. Fixed fees and opportunity costs are
considered when analyzing implementation shortfall, which is not relevant in this
question.

(Book 5, Module 89.1, LO 89.b)

Question #9 of 9 Question ID: 1506478

Which of the following statements regarding machine learning (ML) and/or artificial
intelligence (AI) is most accurate? In reality:

A) ML and AI are readily distinguishable.

B) most claimed ML is AI.
C) most claimed AI is ML.
D) AI is more frequently used in risk management than ML.

Explanation

Because of insufficient technological an organizational ability to handle AI as well as the

fact that most claimed AI is in fact ML, ML is more often used in risk management.

Defining and distinguishing between AI and ML is not a straightforward task; often

references in real life use the term AI when they really mean ML.

(Book 5, Module 89.1, LO 89.a)