nayizhenfeng

 

2、The difference between bottom-up methods for measuring operational risk and top-down methods for measuring operational risk is that bottom-up methods focus on:

A) quantitative rather than qualitative measures of risk.

B) loss causes rather than just loss indicators.

C) loss indicators rather than just loss causes.

D) qualitative rather than quantitative measures of risk.

nayizhenfeng

 

The correct answer is B

 

The bottom-up difference is that the focus is on loss causes rather than just loss indicators. Bottom-up operational risk measures may be either quantitative or qualitative.

nayizhenfeng

 

3、Which of the following approaches to operational risk management can differentiate between high-frequency, low-severity (HFLS) and low-frequency, high-severity (LFHS) events?

A) Top-down approach.

B) Both the top-down approach and bottom-up approach.

C) Bottom-up approach.

D) Neither the top-down approach nor the bottom-up approach.

nayizhenfeng

 

The correct answer is C

 

The bottom-up approach analyzes risk in individual processes, which can distinguish between HFLS and LFHS events. The top-down approach to operational risk measurement examines the aggregate impact of internal operational failures by estimating the variance of economic variables that is left unexplained by external macroeconomic factors and does not distinguish between HFLS and LFHS events.

nayizhenfeng

 

The correct answer is C

 

Due to their predictable nature and small size, the risks that are unlikely to jeopardize the future of the firm are high-frequency, low-severity events. Note that risks related to fraud and business practices tend to create the largest unexpected losses and can therefore jeopardize the firm.