,RSK2602 Assignment 1 (COMPLETE ANSWERS)
Semester 1 2025 - DUE 20 March 2025; 100% correct
solutions and explanations.
Evaluate the accuracy of each of the following statements.
Indicate whether you consider the statement accurate (true) or
not (false) and provide a full motivation for your answer.
2.1 Operational risk is speculative in nature.
2.2 Where a bank is unable to meet unexpected demands for
cash, it means that the bank is illiquid and insolvent.
2.3 The three pillars of operational risk management and
corporate governance in terms of the new Basel Accord are
regulation, supervision and control.
2.4 Speculators in the financial markets normally have an
indifferent attitude towards risk.
2.5 In terms of good corporate governance, the risk committee
should be responsible for determining the levels of risk tolerance
for the organisation.
2.6 Operational risk management drivers include internal,
external and regulatory drivers.
2.7 The investment in preventative controls can be considered as
an upside of operational risk.
2.8 A hybrid approach to risk measurement is the preferred
approach and provides a more realistic reflection of reality.
2.9 The actual management of operational risk should be
performed by means of a bottom-up approach.
, 2.10 There is no upside to operational risk.
2.1 Operational risk is speculative in nature.
False.
Operational risk refers to risks arising from internal failures such
as inadequate processes, human errors, system failures, or
external events (e.g., natural disasters or fraud). It is not
speculative because it does not involve taking risks for potential
gains, unlike market risk. Instead, operational risk is inherent in
business operations and aims to be mitigated rather than
exploited.
2.2 Where a bank is unable to meet unexpected demands for
cash, it means that the bank is illiquid and insolvent.
False.
Illiquidity and insolvency are distinct concepts. A bank may be
illiquid (unable to meet short-term cash demands) but still
solvent if its assets exceed liabilities. Insolvency, however,
means the bank's liabilities exceed its assets, making it
financially unviable. A short-term liquidity crisis does not
necessarily indicate insolvency.
2.3 The three pillars of operational risk management and
corporate governance in terms of the new Basel Accord are
regulation, supervision and control.
Semester 1 2025 - DUE 20 March 2025; 100% correct
solutions and explanations.
Evaluate the accuracy of each of the following statements.
Indicate whether you consider the statement accurate (true) or
not (false) and provide a full motivation for your answer.
2.1 Operational risk is speculative in nature.
2.2 Where a bank is unable to meet unexpected demands for
cash, it means that the bank is illiquid and insolvent.
2.3 The three pillars of operational risk management and
corporate governance in terms of the new Basel Accord are
regulation, supervision and control.
2.4 Speculators in the financial markets normally have an
indifferent attitude towards risk.
2.5 In terms of good corporate governance, the risk committee
should be responsible for determining the levels of risk tolerance
for the organisation.
2.6 Operational risk management drivers include internal,
external and regulatory drivers.
2.7 The investment in preventative controls can be considered as
an upside of operational risk.
2.8 A hybrid approach to risk measurement is the preferred
approach and provides a more realistic reflection of reality.
2.9 The actual management of operational risk should be
performed by means of a bottom-up approach.
, 2.10 There is no upside to operational risk.
2.1 Operational risk is speculative in nature.
False.
Operational risk refers to risks arising from internal failures such
as inadequate processes, human errors, system failures, or
external events (e.g., natural disasters or fraud). It is not
speculative because it does not involve taking risks for potential
gains, unlike market risk. Instead, operational risk is inherent in
business operations and aims to be mitigated rather than
exploited.
2.2 Where a bank is unable to meet unexpected demands for
cash, it means that the bank is illiquid and insolvent.
False.
Illiquidity and insolvency are distinct concepts. A bank may be
illiquid (unable to meet short-term cash demands) but still
solvent if its assets exceed liabilities. Insolvency, however,
means the bank's liabilities exceed its assets, making it
financially unviable. A short-term liquidity crisis does not
necessarily indicate insolvency.
2.3 The three pillars of operational risk management and
corporate governance in terms of the new Basel Accord are
regulation, supervision and control.
