RBS Exam {Questions With 100% Correct Answers}
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RBS EXAM
MOST TESTED & TOUGHEST QUESTIONS (1–10)
Question 1
A bank is assessing credit risk in its loan portfolio. One of its clients has a history of late payments,
volatile cash flows, and high leverage. Which of the following is the MOST appropriate action for the
bank to take?
Options:
A. Approve the loan without conditions
B. Decline the loan outright
C. Approve the loan with tighter covenants and higher interest rate
D. Offer a longer repayment period without adjusting interest
- answer :- : C. Approve the loan with tighter covenants and higher interest rate
Explanation:
High-risk borrowers can be managed by stricter loan covenants (e.g., maintaining financial ratios) and a
higher interest rate to compensate for credit risk. Declining the loan may lose business, while leniency
increases default probability.
Question 2
Which of the following best describes operational risk in a banking environment?
Options:
A. Risk of loss due to borrower default
B. Risk of loss from failed internal processes, people, or systems
C. Risk of loss due to currency fluctuations
D. Risk associated with stock market volatility
,- answer :- : B. Risk of loss from failed internal processes, people, or systems
Explanation:
Operational risk arises from internal failures such as fraud, system breakdowns, or human error, rather
than external market or credit factors. It is a core component of the Basel II/III risk framework.
Question 3
A bank is evaluating the liquidity position of its assets. Which of the following is the BEST indicator of
liquidity risk?
Options:
A. High proportion of fixed assets relative to total assets
B. High levels of customer deposits
C. High trading volume of the bank’s stocks
D. Low net interest margin
- answer :- : A. High proportion of fixed assets relative to total assets
Explanation:
Liquidity risk arises when a bank holds too many illiquid assets (e.g., real estate, long-term loans) that
cannot be quickly converted to cash to meet obligations. Deposits and trading volumes affect liquidity
differently.
Question 4
Which of the following is the PRIMARY purpose of stress testing in banks?
Options:
A. To maximize shareholder profits in favorable conditions
B. To evaluate resilience under extreme but plausible scenarios
C. To ensure compliance with tax regulations
D. To determine employee performance
- answer :- : B. To evaluate resilience under extreme but plausible scenarios
Explanation:
Stress testing assesses a bank’s ability to withstand extreme market, credit, or operational shocks,
identifying vulnerabilities that may threaten solvency or liquidity.
Question 5
A bank is considering expanding into a country with high political risk. Which risk mitigation tool is MOST
appropriate?
, Options:
A. Political risk insurance
B. Increasing loan interest rates for local clients
C. Expanding domestic operations instead
D. Hiring only expatriates
- answer :- : A. Political risk insurance
Explanation:
Political risk insurance protects against losses due to government actions like expropriation,
nationalization, or civil unrest. It is widely used by banks and multinational corporations in risky markets.
Question 6
In Basel III, which ratio is used to assess a bank’s capital adequacy?
Options:
A. Liquidity Coverage Ratio (LCR)
B. Net Stable Funding Ratio (NSFR)
C. Common Equity Tier 1 (CET1) Ratio
D. Return on Assets (ROA)
- answer :- : C. Common Equity Tier 1 (CET1) Ratio
Explanation:
CET1 ratio measures a bank’s core equity capital relative to its risk-weighted assets, indicating its ability
to absorb losses. LCR and NSFR relate to liquidity, not capital adequacy.
Question 7
Which of the following represents a market risk scenario for a bank?
Options:
A. A borrower defaults on a large corporate loan
B. A sudden drop in the value of government bonds in the portfolio
C. Fraudulent activity by a bank employee
D. Failure of IT systems during trading hours
- answer :- : B. A sudden drop in the value of government bonds in the portfolio
Explanation:
Market risk is the risk of losses due to changes in market prices, interest rates, or foreign exchange
rates. Credit risk and operational risk are separate categories.
Question 8
() (Verified by Expert
RBS EXAM
MOST TESTED & TOUGHEST QUESTIONS (1–10)
Question 1
A bank is assessing credit risk in its loan portfolio. One of its clients has a history of late payments,
volatile cash flows, and high leverage. Which of the following is the MOST appropriate action for the
bank to take?
Options:
A. Approve the loan without conditions
B. Decline the loan outright
C. Approve the loan with tighter covenants and higher interest rate
D. Offer a longer repayment period without adjusting interest
- answer :- : C. Approve the loan with tighter covenants and higher interest rate
Explanation:
High-risk borrowers can be managed by stricter loan covenants (e.g., maintaining financial ratios) and a
higher interest rate to compensate for credit risk. Declining the loan may lose business, while leniency
increases default probability.
Question 2
Which of the following best describes operational risk in a banking environment?
Options:
A. Risk of loss due to borrower default
B. Risk of loss from failed internal processes, people, or systems
C. Risk of loss due to currency fluctuations
D. Risk associated with stock market volatility
,- answer :- : B. Risk of loss from failed internal processes, people, or systems
Explanation:
Operational risk arises from internal failures such as fraud, system breakdowns, or human error, rather
than external market or credit factors. It is a core component of the Basel II/III risk framework.
Question 3
A bank is evaluating the liquidity position of its assets. Which of the following is the BEST indicator of
liquidity risk?
Options:
A. High proportion of fixed assets relative to total assets
B. High levels of customer deposits
C. High trading volume of the bank’s stocks
D. Low net interest margin
- answer :- : A. High proportion of fixed assets relative to total assets
Explanation:
Liquidity risk arises when a bank holds too many illiquid assets (e.g., real estate, long-term loans) that
cannot be quickly converted to cash to meet obligations. Deposits and trading volumes affect liquidity
differently.
Question 4
Which of the following is the PRIMARY purpose of stress testing in banks?
Options:
A. To maximize shareholder profits in favorable conditions
B. To evaluate resilience under extreme but plausible scenarios
C. To ensure compliance with tax regulations
D. To determine employee performance
- answer :- : B. To evaluate resilience under extreme but plausible scenarios
Explanation:
Stress testing assesses a bank’s ability to withstand extreme market, credit, or operational shocks,
identifying vulnerabilities that may threaten solvency or liquidity.
Question 5
A bank is considering expanding into a country with high political risk. Which risk mitigation tool is MOST
appropriate?
, Options:
A. Political risk insurance
B. Increasing loan interest rates for local clients
C. Expanding domestic operations instead
D. Hiring only expatriates
- answer :- : A. Political risk insurance
Explanation:
Political risk insurance protects against losses due to government actions like expropriation,
nationalization, or civil unrest. It is widely used by banks and multinational corporations in risky markets.
Question 6
In Basel III, which ratio is used to assess a bank’s capital adequacy?
Options:
A. Liquidity Coverage Ratio (LCR)
B. Net Stable Funding Ratio (NSFR)
C. Common Equity Tier 1 (CET1) Ratio
D. Return on Assets (ROA)
- answer :- : C. Common Equity Tier 1 (CET1) Ratio
Explanation:
CET1 ratio measures a bank’s core equity capital relative to its risk-weighted assets, indicating its ability
to absorb losses. LCR and NSFR relate to liquidity, not capital adequacy.
Question 7
Which of the following represents a market risk scenario for a bank?
Options:
A. A borrower defaults on a large corporate loan
B. A sudden drop in the value of government bonds in the portfolio
C. Fraudulent activity by a bank employee
D. Failure of IT systems during trading hours
- answer :- : B. A sudden drop in the value of government bonds in the portfolio
Explanation:
Market risk is the risk of losses due to changes in market prices, interest rates, or foreign exchange
rates. Credit risk and operational risk are separate categories.
Question 8
