A Risk Professional's Survival Guide: Applied Best Practices in Risk Management

Answer Key

This Answer Key provides answers to even-numbered questions found at the end of each chapter. The full Answer Key is available on Wiley’s Global Education Site for instructors only.

CHAPTER 1

1. 2.   The four key elements include setting the bank’s risk appetite or tolerance for risk-taking, asset and liability generation, risk monitoring, and management of the firm’s risk profile.
2. 4.   Banks use a variety of financial and nonfinancial inputs to maximize profit (the difference between interest and noninterest revenues and expenses). Alternatively, the bank might seek to minimize risk subject to some target rate of return. This is typically a constrained optimization problem for the bank in that it optimizes its objective function subject to a set of specific business constraints.
3. 6.   It should always be looking to avoid systems integration issues that prevent the firm from seamlessly creating the necessary risk data and analytics to allow it to identify, measure, and manage its risks across the firm.
4. 8.   The Volcker Rule is one of the important provisions of the Dodd-Frank Act that among other things places a ban on proprietary trading at banks. Under the rule banks are no longer allowed to engage in trading for profit.
5. 10.   Systemic risk refers to the potential for spillover effects from one firm or market into the entire financial system. This is due to increasing interconnectedness among firms and markets that heighten concerns of contagion effects caused ...