Risk in banking business
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is the primary definition of risk in the context of banking business?
Risk in banking is the potential for loss or adverse outcome arising from uncertainty in financial transactions, operations, or external events. It encompasses the possibility that actual outcomes will differ from expected outcomes.
What is the difference between pure risk and speculative risk in banking?
Pure risk has only loss outcomes; speculative risk has profit or loss outcomes.
Which are the three major categories of risk faced by commercial banks in India?
The three major categories are credit risk (default by borrowers), market risk (losses due to market price movements), and operational risk (failures in processes, people, or systems). These are the pillars of Basel II/III risk framework.
What is pipeline risk in the context of banking business?
Risk arising from committed but unfunded loan or investment exposures.
What is credit risk in banking and how is it typically measured?
Credit risk is the risk of loss arising from a borrower's failure to repay a loan or meet contractual obligations. It is measured using tools like credit ratings, probability of default (PD), loss given default (LGD), and exposure at default (EAD).
What is the meaning of residual risk after applying risk mitigants in banking?
Risk remaining after all control measures and mitigants have been applied.
How does market risk differ from credit risk in a bank's balance sheet?
Market risk arises from adverse movements in market variables such as interest rates, exchange rates, and equity prices affecting the trading book. Credit risk pertains to the banking book and relates to the counterparty's inability to honor obligations.
What is transfer risk in international banking?
Risk that a borrower cannot convert local currency into foreign currency for repayment.
More chapters in Module E - Extras
Master the full RM syllabus
Every chapter of Risk Management (Elective) — videos, tests, notes and one-liner decks in one place.