Certified Financial Risk Practitioner
(Cfrp) Exam Question And Correct
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Rationales 2026 Q&A Instant Download
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1. What is the primary objective of financial risk management?
A. Maximize profits
B. Eliminate all risks
C. Identify, measure, and manage financial risks
D. Increase leverage
Rationale: Financial risk management focuses on identifying, measuring,
monitoring, and mitigating risks, not eliminating them entirely or only
maximizing profits.
2. Which type of risk arises from changes in interest rates?
A. Credit risk
B. Liquidity risk
C. Interest rate risk
D. Operational risk
Rationale: Interest rate risk results from fluctuations in interest rates
affecting asset and liability values.
3. Credit risk is best defined as the risk of:
A. Market price fluctuations
B. Counterparty default
C. System failures
D. Regulatory penalties
, Rationale: Credit risk is the possibility that a borrower or counterparty will
fail to meet obligations.
4. Market risk primarily relates to:
A. Internal fraud
B. Legal disputes
C. Adverse movements in market prices
D. Cash flow timing
Rationale: Market risk arises from changes in equity prices, interest rates,
FX rates, or commodities.
5. Liquidity risk refers to the risk of:
A. Asset depreciation
B. Inability to meet short-term obligations
C. Credit downgrade
D. Accounting errors
Rationale: Liquidity risk is the inability to fund increases in assets or meet
obligations when due.
6. Which risk is caused by failures in internal processes or systems?
A. Market risk
B. Credit risk
C. Operational risk
D. Reputational risk
Rationale: Operational risk includes system failures, fraud, and process
breakdowns.
7. Value at Risk (VaR) measures:
A. Expected profit
B. Worst possible loss
C. Potential loss at a given confidence level
D. Average return
Rationale: VaR estimates the maximum expected loss over a given time
horizon at a specific confidence level.
, 8. A 99% VaR means:
A. Losses will not occur
B. Losses will exceed VaR only 1% of the time
C. Losses occur 99% of the time
D. VaR equals maximum loss
Rationale: VaR indicates a threshold exceeded only in the worst 1% of
cases.
9. Which method assumes normal distribution of returns for VaR calculation?
A. Historical simulation
B. Monte Carlo simulation
C. Variance-covariance method
D. Stress testing
Rationale: The variance-covariance approach relies on normal distribution
assumptions.
10.Stress testing is used to:
A. Predict daily profits
B. Evaluate extreme but plausible scenarios
C. Replace VaR
D. Eliminate risk
Rationale: Stress testing examines portfolio performance under extreme
conditions.
11.Basel III primarily focuses on:
A. Accounting standards
B. Bank capital and liquidity requirements
C. Corporate governance
D. Tax compliance
Rationale: Basel III strengthens capital adequacy, stress testing, and
liquidity standards.
12.Tier 1 capital mainly consists of:
A. Subordinated debt
B. Common equity and disclosed reserves
(Cfrp) Exam Question And Correct
Answers (Verified Answers) Plus
Rationales 2026 Q&A Instant Download
1. What is the primary objective of financial risk management?
A. Maximize profits
B. Eliminate all risks
C. Identify, measure, and manage financial risks
D. Increase leverage
Rationale: Financial risk management focuses on identifying, measuring,
monitoring, and mitigating risks, not eliminating them entirely or only
maximizing profits.
2. Which type of risk arises from changes in interest rates?
A. Credit risk
B. Liquidity risk
C. Interest rate risk
D. Operational risk
Rationale: Interest rate risk results from fluctuations in interest rates
affecting asset and liability values.
3. Credit risk is best defined as the risk of:
A. Market price fluctuations
B. Counterparty default
C. System failures
D. Regulatory penalties
, Rationale: Credit risk is the possibility that a borrower or counterparty will
fail to meet obligations.
4. Market risk primarily relates to:
A. Internal fraud
B. Legal disputes
C. Adverse movements in market prices
D. Cash flow timing
Rationale: Market risk arises from changes in equity prices, interest rates,
FX rates, or commodities.
5. Liquidity risk refers to the risk of:
A. Asset depreciation
B. Inability to meet short-term obligations
C. Credit downgrade
D. Accounting errors
Rationale: Liquidity risk is the inability to fund increases in assets or meet
obligations when due.
6. Which risk is caused by failures in internal processes or systems?
A. Market risk
B. Credit risk
C. Operational risk
D. Reputational risk
Rationale: Operational risk includes system failures, fraud, and process
breakdowns.
7. Value at Risk (VaR) measures:
A. Expected profit
B. Worst possible loss
C. Potential loss at a given confidence level
D. Average return
Rationale: VaR estimates the maximum expected loss over a given time
horizon at a specific confidence level.
, 8. A 99% VaR means:
A. Losses will not occur
B. Losses will exceed VaR only 1% of the time
C. Losses occur 99% of the time
D. VaR equals maximum loss
Rationale: VaR indicates a threshold exceeded only in the worst 1% of
cases.
9. Which method assumes normal distribution of returns for VaR calculation?
A. Historical simulation
B. Monte Carlo simulation
C. Variance-covariance method
D. Stress testing
Rationale: The variance-covariance approach relies on normal distribution
assumptions.
10.Stress testing is used to:
A. Predict daily profits
B. Evaluate extreme but plausible scenarios
C. Replace VaR
D. Eliminate risk
Rationale: Stress testing examines portfolio performance under extreme
conditions.
11.Basel III primarily focuses on:
A. Accounting standards
B. Bank capital and liquidity requirements
C. Corporate governance
D. Tax compliance
Rationale: Basel III strengthens capital adequacy, stress testing, and
liquidity standards.
12.Tier 1 capital mainly consists of:
A. Subordinated debt
B. Common equity and disclosed reserves
