Skip to content

CMA Final · Risk Management in Banking and Insurance · Market Risk Management

Under the Basel framework, which of the following is treated as a component of market risk capital charge in the trading book?

Interest rate risk on trading book positions is a market risk component. Market risk covers losses from movements in interest rates, equity prices, exchange rates and commodity prices. Process failures are operational risk, loan default is credit risk, and inability to meet withdrawals is liquidity risk.

  1. ARisk of loss from failed internal processes
  2. BInterest rate risk arising from the trading book positionsCorrect
  3. CRisk that a borrower defaults on a term loan in the banking book
  4. DRisk of a bank being unable to meet withdrawals

Explanation

Market risk is the risk of losses in on- and off-balance sheet positions from movements in market prices such as interest rates, equity prices, foreign exchange rates and commodity prices. Trading book interest rate risk therefore attracts a market risk capital charge. Process failures are operational risk, borrower default is credit risk and withdrawal inability is liquidity risk.

Did you get it right without looking?

One question tells you little. A timed set on Market Risk Management shows your real accuracy, how long you take and where you lose marks.

Practise Market Risk ManagementFree diagnostic mock

More Market Risk Management questions