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FRM Part II · FRM Exam Part II · Risk Measurement and Assessment

A bank sets a KRI for unreconciled trade breaks with a green threshold below 20 breaks, amber from 20 to 49, and red at 50 or more. Over four weeks the count is 12, 18, 27 and 41, with no change in trade volume. What is the most appropriate interpretation?

The breaks have moved from green into amber and are trending upward toward the red limit with volumes unchanged. Management should investigate root causes now, before red is breached. Raising thresholds would mask the deterioration, and escalation for red is not yet required.

  1. AThe indicator is green throughout, so no action is needed
  2. BThe indicator is red, so the escalation protocol must be triggered immediately
  3. CThe trend is deteriorating and has moved into amber, so management should investigate the cause before the red limit is breachedCorrect
  4. DThe thresholds should be raised so the indicator returns to green

Explanation

The count crossed from green into amber at week 3 (27) and is rising toward the red limit of 50 with stable volumes, suggesting a control or process problem. Proactive investigation is the point of a KRI. Red has not been breached, and raising thresholds would hide the signal.

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