ERM EST Past Papers and Unseen-Question Mastery

What are digital-bank rates and convenience in Japan's regional banks?

Digital-bank rates refer to the interest rates offered by digital banks, which often provide more convenience through online services compared to traditional banks.

What is funding-liquidity risk?

Funding-liquidity risk is the risk that a bank will not be able to meet its financial obligations as they come due without incurring unacceptable losses.

What are the effects of ageing and long-term deposit outflows?

Ageing populations can lead to long-term deposit outflows as older individuals withdraw funds for retirement, impacting bank liquidity.

How does a weak yen and rising rates affect SMEs in Japan?

A weak yen increases import costs for SMEs, while rising interest rates can raise borrowing costs, straining their financial stability.

What is the impact of a labour shortage on Japanese banks?

A labour shortage can reduce operational efficiency and increase costs for banks, impacting their profitability and service delivery.

What are fixed-rate overseas bond losses when yields rise?

When interest rates rise, the market value of fixed-rate bonds falls, leading to potential losses for banks holding these securities.

What role does the Japanese government play as a lender of last resort?

The Japanese government can provide emergency funding to banks facing liquidity crises to stabilize the financial system.

What are the consequences of an unsuccessful rescue in banking?

An unsuccessful rescue can lead to bank failures, loss of depositor confidence, and systemic risk in the financial system.

What is moral hazard in banking?

Moral hazard occurs when banks take excessive risks because they believe they will be bailed out in case of failure, leading to systemic risk.

Why are challenges in the Japanese banking sector severe, structural, and long-term?

Challenges are structural due to demographic changes, economic stagnation, and long-term due to persistent low interest rates and regulatory pressures.

What is currency risk from PLN depreciation in Polish CHF mortgages?

Currency risk arises when the value of the PLN decreases against the CHF, increasing the cost of mortgage repayments for borrowers.

What is bank credit risk from collateral shortfall?

Bank credit risk occurs when the value of collateral backing a loan falls below the loan amount, increasing the risk of default.

What is mis-selling as operational risk in banking?

Mis-selling occurs when banks sell inappropriate financial products to customers, leading to legal liabilities and reputational damage.

What is court-loss provisioning?

Court-loss provisioning involves setting aside funds to cover potential losses from legal disputes or court rulings against the bank.

How do provisions diverted from revenue affect banks?

Diverting provisions from revenue can reduce reported profits, impacting a bank's financial health and investor perceptions.

What is primary-residence default behaviour?

Primary-residence default behaviour refers to the tendency of homeowners to prioritize mortgage payments on their primary residence over other debts.

What are first-line product ownership issues in banking?

First-line product ownership issues arise when banks fail to take responsibility for the products they sell, leading to accountability problems.

What are people/process/external causal factors in banking risks?

Causal factors in banking risks can include human errors, inadequate processes, and external economic conditions affecting bank performance.

What are issuer currency and interest-rate risks in dual-currency bonds?

Issuer currency risk arises when the currency of the bond issuer depreciates, while interest-rate risk involves fluctuations in interest rates affecting bond yields.

What are investor currency, interest-rate, and credit risks?

Investor currency risk is the risk of currency fluctuations affecting returns, interest-rate risk is the risk of changing rates impacting bond prices, and credit risk is the risk of issuer default.

What are board risk duties in corporate governance?

Board risk duties involve the responsibilities of board members to oversee and manage risks within the organization effectively.

What is the conflict between Apple and Google in corporate governance?

The conflict involves competition over market share, data privacy, and user trust, impacting corporate strategies and governance practices.

What are the definitions of both conflicts in corporate governance?

Conflicts in corporate governance can refer to conflicts of interest among board members or between management and shareholders.

What is MFA in the context of banking?

MFA, or multi-factor authentication, is a security measure that requires multiple forms of verification to access accounts, enhancing security.

What are family-SME succession issues?

Family-SME succession issues involve challenges in transferring ownership and management of family-owned businesses to the next generation.

What are floating reference-rate spread effects in private credit cases?

Floating reference-rate spread effects refer to the impact of changes in reference rates on the cost of borrowing in private credit markets.

What is an IRS hedge?

An IRS hedge, or interest rate swap, is a financial derivative used to manage exposure to fluctuations in interest rates by exchanging fixed and floating rate payments.

What is trading illiquidity?

Trading illiquidity refers to the difficulty of buying or selling an asset without causing a significant price change due to low market activity.

What is Level 3 valuation in finance?

Level 3 valuation involves using unobservable inputs to determine the fair value of an asset, often used for complex financial instruments.

What is non-investment-grade credit risk?

Non-investment-grade credit risk refers to the risk associated with bonds rated below investment grade, indicating a higher likelihood of default.

What is systemic contagion in finance?

Systemic contagion is the risk that financial distress in one institution can spread to others, potentially leading to a broader financial crisis.

What is operational risk in banking?

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, systems, or external events.

What is RCSA in operational risk management?

RCSA, or Risk Control Self-Assessment, is a process used by organizations to identify and assess risks and controls within their operations.

What are scam victim and money-mule situations?

Scam victim situations involve individuals deceived into providing money or personal information, while money-mule situations involve individuals unknowingly facilitating fraud.

What is the strongest 4T answer in risk management?

The strongest 4T answer involves identifying the Threat, Trigger, Tolerance, and Treatment of a risk to effectively manage it.

What is justified responsibility redistribution in risk management?

Justified responsibility redistribution involves reallocating risk management responsibilities based on accountability and expertise within an organization.

What are effective and ineffective cases of MFA?

Effective MFA cases successfully prevent unauthorized access, while ineffective cases may have vulnerabilities that can be exploited.

What are unlocked funds as residual risk?

Unlocked funds refer to money that is not secured or protected, representing a residual risk that could be lost or misappropriated.

What are rapid in-and-out transfers as a KRI?

Rapid in-and-out transfers can serve as a Key Risk Indicator (KRI) for potential fraudulent activities or money laundering in banking.

What is rising credit risk in banking?

Rising credit risk refers to the increasing likelihood of borrowers defaulting on loans, often due to economic downturns or deteriorating financial conditions.

What is the purpose of refinancing in banking?

Refinancing allows borrowers to replace an existing loan with a new one, often to secure better terms or reduce monthly payments.

What is a syndicated loan?

A syndicated loan is a loan provided by a group of lenders to a single borrower, spreading the risk among multiple financial institutions.

What are the consequences of failure in loan repayment?

Failure to repay loans can lead to foreclosure, loss of collateral, and damage to credit ratings for borrowers.

What is NPL and provisioning in banking?

NPL, or non-performing loans, are loans that are in default or close to being in default, requiring banks to set aside provisions for potential losses.

What is ECL calculation in banking?

ECL, or expected credit loss, is calculated by multiplying the probability of default (PD) by the loss given default (LGD) and the exposure at default.

What are succession problems in family businesses?

Succession problems in family businesses can arise from conflicts over leadership roles, ownership disputes, and lack of planning for future transitions.

What is delay-and-pray risk?

Delay-and-pray risk refers to the strategy of delaying action in hopes that a situation will improve, which can lead to greater losses.

What are traps in risk management?

Traps in risk management include confusing events with causes, misunderstanding MFA, and failing to recognize residual risks in controls.

What is the difference between transaction, translation, and economic exposure?

Transaction exposure relates to actual cash flows, translation exposure relates to financial statement impacts, and economic exposure relates to long-term market value changes.

What is the difference between fixed receiver and fixed payer in swaps?

In swaps, a fixed receiver benefits from fixed payments, while a fixed payer is obligated to make fixed payments, exposing them to interest rate risk.

What is the difference between provision and write-off?

Provision refers to setting aside funds for expected losses, while a write-off is the removal of an uncollectible asset from the balance sheet.

What is Level 3 valuation's requirement for inputs?

Level 3 valuation requires unobservable inputs based on assumptions rather than merely assessing riskiness, making it subjective.

Why do final numbers without workings lose marks?

Final numbers without workings lose marks because they do not demonstrate the understanding or process used to arrive at the conclusion.