RSK2602 - gimmenotes.co.za · RSK2602/101/3/2016 . Tutorial Letter 101/3/2016 Fundamentals of Operational and Financial Risk

RSK2602/101/3/2016

Tutorial Letter 101/3/2016 Fundamentals of Operational and Financial Risk

RSK2602

Semesters 1 & 2 Department of Finance, Risk Management and Banking

IMPORTANT INFORMATION:

Please activate your myUnisa and myLife email addresses and ensure you have regular access to the myUnisa module site RSK2602-2016 S1 or S2.

Note: Please note that this module is offered online only. All material will be made available on myUnisa under “official study material” and/or under “study units”. However, in order to support you in your learning process, you will also receive some study materials in printed format.

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CONTENTS

Page

1 INTRODUCTION .......................................................................................................................... 3

1.1 To get started.. .............................................................................................................................. 3

2 MODULE FORMAT: RSK2602 ..................................................................................................... 3

2.1 Fully online module.. ..................................................................................................................... 3

2.2 Printed materials to support the online modules .. ......................................................................... 3

3 PURPOSE AND OUTCOMES FOR THE MODULE ..................................................................... 4

3.1 Purpose ........................................................................................................................................ 4

3.2 Outcomes ..................................................................................................................................... 4

4 LECTURER AND TUTORS .......................................................................................................... 4

4.1 Lecturer ........................................................................................................................................ 4

4.2 Tutors ........................................................................................................................................... 5

5 MODULE RELATED RESOURCES ............................................................................................. 5

5.1 Prescribed books .......................................................................................................................... 5

5.2 Joining myUnisa ........................................................................................................................... 5

6 ASSESSMENT ............................................................................................................................. 6

6.1 Assessment plan .......................................................................................................................... 6

6.2 General assignment numbers ....................................................................................................... 7

6.3 Unique assignment numbers ........................................................................................................ 7

6.4 Due dates for assignments ........................................................................................................... 7

6.5 Submission of assignments .......................................................................................................... 7

6.6 Feedback on assignments………………………………………………………………………………. 7

7 EXAMINATION ............................................................................................................................. 8

8 CONCLUSION .............................................................................................................................. 8

ANNEXURE A: ASSIGNMENTS FOR SEMESTER 01

ANNEXURE B: ASSIGNMENTS FOR SEMESTER 02

ANNEXURE C: SELF-ASSESSMENT ASSIGNMENT

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1 INTRODUCTION Dear Student

Welcome to the module Fundamentals of Operational and Financial Risk (RSK2602). You have enrolled for an interesting yet challenging module. To be successful in this module, you will have to devote at least 120 hours to reading, summarizing and doing assignments. Do not hesitate to contact me (on myUnisa, by email or by telephone) if you are experiencing problems with the content of this tutorial letter or any aspect of the module. I sincerely hope that you find this module, as well as your online learning experience, interesting and rewarding and trust that you will complete the module successfully. Please also provide Unisa with your cellular number because important announcements may be sent to you by sms. Also check your myLife email address regularly for announcements. 1.1 To get started…

Please note that this module is offered fully online and you therefore need to go online to see your study materials and complete the learning activities for this course. Go to the website here: https://my.unisa.ac.za and login with your student number and password. You will see the RSK2602-16-S1/S2 module site in the row of modules in the orange blocks across the top of the webpage. Remember to also check in the - more site - tab if you cannot find it in the orange blocks. Click on the module you want to open and read the Welcome page. We wish you success on your journey! 2 MODULE FORMAT: RSK2602

2.1 Fully online module All study material for this module will be available on myUnisa. It is thus very important that you register on myUnisa and access the module site on a regular basis. You must be registered on myUnisa to be able to access your learning material and assignment questions, submit your assignments, gain access to various learning resources, “chat” to your lecturer or fellow students about your studies and the challenges that you might encounter, and to participate in online discussion forums. Importantly, myUnisa contains the Learning Units tool from which you will only be able to access the study material for this module if you have registered and have access to myUnisa. This tutorial letter (TL101/3/2016) is also available on-line under “Official Study Material” and the study guide is available under “Additional Resources”. Please also go to “Additional Resources” and “Announcements” for updates on the study material or other important messages. These are available online only. 2.2 Printed materials to support the online module

Because we want you to be successful in this online module, Unisa will also provide you with the Study Guide in printed format. This will allow you to read the study materials, even if you are not online.

Remember, the printed support materials are a back-up to everything that is found online, on myUnisa under the Learning Units and/or Official Study Material. All additional resources must be downloaded from myUnisa. In other words, you should NOT wait for the printed support materials to arrive to start studying.

Please consult with the my Studies @ Unisa publication for more information on the activation of your myLife email address as well as obtaining access to the myUnisa module site.

https://my.unisa.ac.za/

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3 PURPOSE OF AND OUTCOMES FOR THE MODULE 3.1 Purpose The purpose of this module is to enable you to study the fundamental concepts and principles applicable to the field of Operational risk. Specific module outcomes are provided in the UNISA study guide provided online and in a printed format at registration. 3.2 Outcomes On completion of this module students will be able to • identify and define risk management. • understand risk qualification and quantification. • understand the concept of operational risk. • understand the concept of financial risks • identify the underlying operational risk factors in terms of internal and external factors. • identify the underlying financial risk factors for market and credit risk. • understand the key principles to manage risks. • identify and define the concept of capital adequacy and capital allocation. • understand the difference between regulatory and economic capital. • understand how to calculate a realistic capital allocation to risks. • understand the Basel Capital Accord for risk management.

Also refer to additional module and study unit learning outcomes reflected in the study guide. 4 LECTURER AND TUTORS

4.1 Lecturer

The primary lecturer responsible for this module is:

Mrs C de Swardt

AJH van der Walt 5-115

[email protected]

Consulting hours: 09:00-15:00 (Monday to Thursday)

You are welcome to contact me via email to discuss any problems you may encounter in your academic study material. To enable me to assist you, please be specific on enquiry and furnish me with the following information: • Topic • Definition of the problem/concern • Your suggested solution/understanding of the problem. You may also want to discuss certain topics with one another using the discussion forum on myUnisa (https://my.unisa.ac.za).

mailto:[email protected]


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Please make a formal appointment beforehand for personal visits to the lecturers. Also note that lecturers can only help you with academic matters. To contact the University, you should follow the instructions in the my Studies @ Unisa brochure. Remember to have your student number available when you contact the University. When you contact the lecturer, please do not forget to always include your student number and module code. This will help the lecturer to assist you. 4.2 Tutors Please be informed that, with effect from 2013, Unisa offers online tutorials (e-tutoring) to students registered for qualifying modules at NQF level 5, 6 and 7 which means first year, second year and third year modules respectively. Once you have been registered for a qualifying module, you will be allocated to a group of students with whom you will be interacting during the tuition period as well as an e-tutor who will be your tutorial facilitator. Thereafter you will receive a sms informing you about your group, the name of your e-tutor and instructions on how to log onto myUnisa in order to receive further information on the e-tutoring process. Online tutorials are conducted by qualified e-tutors who are appointed by Unisa and are offered free of charge. All you need to be able to participate in e-tutoring is a computer with internet connection. If you live close to a Unisa Regional Centre or a Telecenter contracted with Unisa, please feel free to visit any of these to access the internet. E-tutoring takes place on myUnisa where you are expected to connect with other students in your allocated group. It is the role of the e-tutor to guide you through your study material during this interaction process. For you to get the most out of online tutoring, you need to participate in the online discussions that the e-tutor will be facilitating. If there are any e-tutors allocated for the module RSK2602, you will be notified by the lecturer via myUnisa. For those modules with low through-put rates, face-to-face tutors are appointed and tutorials for these modules take place at the Unisa Regional Centers. There are currently no face-to-face tutors appointed for the module RSK2602. 5 MODULE RELATED RESOURCES 5.1 Prescribed books The compulsory prescribed textbook for this module is: • Young, J. 2014. Operational Risk Management. 2nd ed. Van Schaik Publishers. The study guide supplied by UNISA serves as a guide for studying the prescribed book. 5.2 Joining myUnisa

If you have access to a computer that is linked to the internet, you can quickly access resources and information at the University. The myUnisa learning management system is Unisa's online campus that will help you to communicate with your lecturers, with other students and with the administrative departments of Unisa – all through the computer and the internet.

You can start at the main Unisa website, http://www.unisa.ac.za, and then click on the myUnisa orange block. This will take you to the myUnisa website. To go to the myUnisa website directly, go to https://my.unisa.ac.za. When you are on the myUnisa website, click on the “Claim UNISA Login” at the right-hand side of the screen. You will then be prompted to give your student number to claim your initial myUnisa as well as myLife login details.

Please consult the publication my Studies @ Unisa which you received with your study material for more information on myUnisa.

http://www.unisa.ac.za/


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It is therefore very important that you log into myUnisa regularly. We recommend that you should do this at least every week or every 10 days to check for announcements and activities on the discussion form.

We hope that this system will help you to succeed in this online module by giving you extra ways to study the materials. At the same time, you MUST go online in order to complete the activities and assignments on time and to get the most from the online course.

Remember, the printed support materials are only a back-up to everything that is found online, on myUnisa. You therefore do NOT have to wait for the printed support materials to arrive to start studying this module.

6 ASSESSMENT

6.1 Assessment plan

Assignments are seen as part of the learning material for this module. As you do the assignments, study the reading texts, consult other resources, discuss the work with fellow students or do research, you are actively engaged in learning. Paying attention to the assessment criteria for each assignment will help you to understand what is required of you more clearly. You may submit assignments either by post or electronically via myUnisa. Assignments may not be submitted by fax or e-mail. For detailed information and requirements as far as assignments are concerned, see the brochure my Studies @ Unisa that is available on the Unisa web-site. Compulsory assignments There are two compulsory assignments per semester for this module. There are non-negotiable submission deadlines for each of the assignments of this module. The assignments contribute to your year mark. (See below). A third assignment containing written questions is also included. This assignment is for self-assessment only and must not be submitted.

Year marks Your year mark, based on the marks obtained for the two compulsory assignments, contributes 20% towards your final mark, while your examination mark contributes 80%. The combined weighted average of your year mark and examination mark must be 50% or higher for you to pass the module. However, you must obtain a minimum of 40% in the examination, regardless of your year mark. If you obtain less than 40% in the examination, your year mark will not be taken into account and you will fail. For example: Assignment 01 mark = 50% Assignment 02 mark = 90%. These marks each contribute 50% towards the final 20% year mark.

Assignment no Mark Weight Total Ass. 01 50% 50% 25 Ass. 02 90% 50% 45 70 x 20% of final = 14

Assume an examination mark of 45% 80% of the examination mark is 36 Final mark = (20% of the average assignment marks) + (80% examination mark) = 14 + 36 = 50%

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The example demonstrates that your year mark can help you to pass the module. To pass the module you need a final mark of at least 50% and to qualify for a supplementary examination you will need a final mark of above 40%. 6.2 General assignment numbers Assignments are numbered consecutively per module, starting from 01. 6.3 Unique assignment numbers Each assignment has been allocated a unique number in order to identify it in the Unisa assessment plans. Please ensure you always indicate the correct unique number when submitting assignments. 6.4 Due dates for assignments

Semester Semester 1 Semester 2

Assignment 01 Due date: 18 March 2016 Unique number: 773516

Due date: 19 August 2016 Unique number: 866163

Assignment 02 Due date: 8 April 2016 Unique number: 883487

Due date: 12 September 2016 Unique number: 721509

You should preferably submit your assignments at https://my.unisa.ac.za. Do not wait until the day just prior to the due date to submit your assignment. Technical problems with the computer servers of myUnisa may prevent you from submitting your assignment at the last minute. Should you not be able to submit your assignments at myUnisa and need to mail us your assignments in hard copy format please ensure that your assignments reach the Unisa main campus by the due dates. Requests for extension of due dates for assignments will not be granted. These due dates have been set to allow you sufficient time for the completion of other assignments and your preparation for the examination. Information about whether Unisa has received your assignment and the mark attained for an assignment can be obtained from https://my.unisa.ac.za. 6.5 Submission of assignments To submit an assignment via myUnisa: • Go to myUnisa at https://my.unisa.ac.za • Log in with your student number and password. • Select the module. • Click on assignments in the left-hand menu. • Click on the assignment number you want to submit. • Follow the instructions on the screen. 6.6 Feedback on assignments The suggested solutions to the assignments will be posted on myUnisa after the due date of the respective assignments. The assignments form an important part of your learning experience and it is advisable to redo the assignment after you receive the feedback to make sure that you comprehend the learning outcomes and to prepare you for the examination. Assignments are seen as part of the learning material for this module. As you do the assignment, study the reading texts, consult other resources, or do research (i.e. actively engage in learning), refer to the



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learning outcomes and assessment criteria given for each study unit in the study guide to determine what is required of you. Refer to Annexure A, B and C for the assignment questions. 7 EXAMINATION

Examination admission will be granted to all students who submit Assignment 01 before the due date. Students who do not submit the assignment will NOT be allowed to write the examination. The provisional examination dates have been published at https://my.unisa.ac.za. The examination for RSK2602 will be a 2 hour paper for 70 marks. Details of the composition of the examination will be provided in TL 201 which will be available on-line and in printed format after the due date of the second assignment. A student must attain a mark of at least 40 per cent in order to qualify for admission to the supplementary examination. Details about the procedure and cost for the re-marking of examination scripts may be found on myUnisa (https://my.unisa.ac.za). 8 CONCLUSION This tutorial letter provided you with the purpose and outcomes of the module. The contact details of the lecturer have been provided, as well as module related resources and student support services. It is important that you now prepare a study plan for yourself and devote 120 hours to this module in order to achieve success in the examination. A tutor guideline will be uploaded on myUnisa to assist you in this regard. Details of your assessment have been provided, including your assignments for the different semesters. Please contact the Insurance Institute as soon as possible to order your prescribed book. We wish you all of the best with your studies. Kind regards Mrs CJ de Swardt Department Finance, Risk Management and Banking



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ANNEXURE A: ASSIGNMENTS FOR SEMESTER 01

Please note: The compulsory assignments for semesters 01 and 02 differs.

ASSIGNMENT 01

Due date: 18 March 2016 Unique number: 773516

The purpose of this assignment is to test your knowledge and understanding of:

• Risk, risk types and operational risk • Operational risk management framework • Development of an operational risk management function

Study Chapters 1-3 in the prescribed book together with the corresponding material in the Unisa study guide. Answer the following questions and submit your assignment at https://my.unisa.ac.za

This assignment is compulsory for admission to the examination. Question 1 Forward contracts … 1 are used mainly as anticipatory hedges. 2 are used to provide leverage or gearing. 3 are used to hedge against operational risk. 4 allow investors to transform current commitments in an attempt to match up with changing

circumstances and expectations. Question 2 Financial risk include amongst others: 1 Country risks, credit risks and strategic risks. 2 Strategic risks, Operational risks and reputational risks. 3 Credit risk, currency risks and market risks 4 Operational risks, credits risks and market risks Question 3 An enterprise risk management approach to risk management … a. addresses interdependencies between different risks in an organisation. b. promotes the exploration of opportunities. c. enhances the shareholder value of the organisation. d. concentrates on the reduction of uncertainty and operational risk management. Choose the correct combination: 1 a,b,c,d 2 c,d 3 b,c 4 a,b,c

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Question 4 The attitude towards risk that requires an increase in return for an increase in risk … 1 is not conducive for taking any risks to enhance the business. 2 is considered a conservative approach to risk management. 3 normally relates to speculation. 4 is referred to as a risk-seeking approach to risk management. Question 5 When the repro rate is decreased by the Reserve Bank … 1 interest rates of financial institutions are indirectly influenced. 2 the economy of the country will normally receive a boost. 3 consumers will have less money to spend on durables and investments. 4 it normally has a dampening effect on the economy. Question 6 The bottom-up approach to the establishment of an operational risk management function involves… 1 identifying risk exposures. 2 formulating a definition for operational risk. 3 defining the operational risk categories. 4 developing a risk culture. Question 7 Which one of the following is an internal operational risk driver? 1 Innovation. 2 Cost effectiveness. 3 Reputation. 4 Market events. Question 8 The following strategic risk factors will influence the business strategy, once formulated: a. Risk culture of the business. b. Reputation c. Correct timing d. Sound legislation procedures.

Choose the correct combination: 1 a,b,c 2 b,c,d 3 a,c,d 4 a,b,c,d

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Question 9 Indicate the correct statement with regard to operational risk. 1 The main factors of operational risk are people, processes and external events. 2 Internal operational factors should be reviewed in terms of capacity and capability. 3 Causes and effects of loss events can be classified in terms of frequency and impact. 4 Business strategy has little effect on operational risks. Question 10

Market risk is the risk of a decrease in the value of a financial portfolio as a result of adverse movement in market variables such as … a. prices of commodities b. foreign exchange c. equity d. interest rates

Choose the correct combination: 1 a,b,c 2 c,d 3 b,c 4 a,b,c,d

Question 11 Technological risks can be prevented through functional protection measures in the form of … 1 firewalls. 2 security measures. 3 back-up systems. 4 password protection.

Question 12 External sub-risk factors of operational risk include … 1 fraudulent actions. 2 money laundering. 3 data theft. 4 recording processes.

Question 13 The three pillars of the New Basel Capital Accord are as follows: 1 Regulatory capital requirements, supervisory oversight and market discipline. 2 Internal, external and environmental risk factors. 3 Risk assessment, control and mitigation. 4 Supervisory capital requirements, monitoring and risk management discipline.

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Question 14 The operational risk management framework comprises of … 1 identification, assessment, control and financing. 2 strategy, culture, structure and process. 3 vision, mission, environment and goals and objectives. 4 data, risk appetite, objectives and action plans.

Question 15 Identified risks can be managed through … a. avoidance. b. acceptance. c. financing. d. reduction e. transfer

Choose the correct combination: 1 a,b,d,e 2 a,b,c,d 3 b,c,d,e 4 a,b,c,d,e

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ASSIGNMENT 02 : SEMESTER 01

Due date: 8 April 2016 Unique number: 883487


• Risk, risk types and operational risk • Operational risk management framework • Development of an operational risk management function • Operation risk identification • Operational risk evaluation • Operational risk control • Operational risk financing • Operational risk monitoring • Operational risk management model

Study all the chapters in the prescribed book together with the corresponding material in the Unisa study guide. Answer the following questions and submit your assignment at https://my.unisa.ac.za

This assignment contributes 50% towards your year mark.

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Question 1

Indicate the correct statement with regard to residual risk.

1 Where residual risk shows low risk, it is regarded as a key risk indicator. 2 Residual risk is the risk before control measures are taking into account. 3 Residual risk is a product of the probability rating and the rating of control measures. 4 High residual risk requires reactive decisions to prevent the risk from occurring. Question 2 Indicate the correct statement:

1 The impact of risk exposures can be rated as probably, possible and remote. 2 The qualitative approach to risk evaluation aims to quantify risk in numerical terms. 3 The likelihood of risk exposures can be rated as probably, possible and remote. 4 Using scales to determine the impact of a potential loss is an example of a quantitative approach. Question 3 Risk self-assessment …

1 is a top-down approach to evaluating operational risk. 2 is based on expert opinion. 3 could result in an objective reflection of the risk. 4 eliminates changes of duplication. Question 4

The following factors should be considered during risk evaluation:

a. The potential financial impact of the risk event. b. The potential reputational effect should the loss occur. c. The significance of the risk and likelihood of the loss. d. The cost of risk controls in relation to potential loss. Choose the correct combination:

1 a,b,c 2 a,c,d 3 a,b,d 4 a,b,c,d Question 5

Quantitative approaches to risk evaluation include: a. Database modelling b. Risk process flow analysis c. Stochastic modelling d. Causal modelling Choose the correct combination:

1 a,b,c,d 2 b only 3 a,c,d 4 a,b,d

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Question 6 Indicate the correct equation: 1 Residual risk = inherent risk - controls 2 Residual risk = inherent risk+ controls 3 Inherent risk = key risk - controls 4 Inherent risk = residual risk Question 7 In order to ensure an appropriate measure of operational risk across the organisation, measurements should be … a. subjective b. auditable c. relevant d. consistent Choose the correct combination:

1 b,c,d 2 a,c,d 3 a only 4 a,b,d

Question 8 The main components of a data model for operational risk are as follows: 1 Operational loss data, key risk indicators and qualitative measures. 2 Key risk indicators, qualitative and quantitative measures. 3 Risk and control self-assessments, risk process flow analysis and scenario analysis. 4 Stochastic modelling, casual modelling and Value-at-Risk.

Question 9 Low-frequency, high-severity type losses would be best dealt with through … 1 avoidance 2 transfer 3 acceptance 4 reduction

Question 10 The pillars of risk control are as follows: 1 Avoidance, reduction, acceptance and transfer. 2 Prevention, detection and contingency control. 3 Organisational structure, policies and procedures, controls and reporting. 4 Information and communication, monitoring, evaluating.

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Question 11 Risk reporting on the risk profile and business performance should be done on a … basis and directed to … 1 daily senior management. 2 daily executive management. 3 monthly senior management. 4 annual shareholders and public.

Question 12 Pre-financing of operational risk include … 1 cash resources. 2 debt. 3 insurance. 4 equity.

Question 13 Internal controls and loss prevention expenses include amongst others: a. Operational risk system costs. b. Cost of segregation of duties. c. Cost of procedure manuals. d. Cost of reporting. Choose the correct combination:

1 a,c,d 2 a only 3 a,b,d 4 b,c,d

Question 14

Risk transfer …

1 entails the physical transfer of an organisation’s risk to a third party. 2 is suitable for most areas of operational risk. 3 is considered a cost-effective mitigation technique. 4 entails the transfer of the financial effect of the risk to a third party. Question 15

Indicate the correct statement:

1 Retained risk may be funded or unfunded. 2 An example of funded retained risk is insurance. 3 Unfunded retained risk is suitable for low-frequency, high-impact losses. 4 Funded risk retention is suitable for uninsurable risks. [15]

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ANNEXURE B: ASSIGNMENTS FOR SEMESTER 02

Please note: The compulsory assignments for semester 01 and 02 differs.

ASSIGNMENT 01

Due date: 19 August 2016 Unique number: 866163


• Risk, risk types and operational risk • Operational risk management framework • Development of an operational risk management function

Study Chapters 1-3 in the prescribed book together with the corresponding material in the Unisa study guide. Answer the following questions and submit your assignment at https://my.unisa.ac.za

This assignment is compulsory for admission to the examination. Question 1 Indicate the correct statement with regard to risk and risk management: 1 Risk management should be focussed on the upside of possible risk events. 2 A risk event with a high probability of occurring is considered a high risk event. 3 Risk management should be focussed on loss preventing measures. 4 Risk should primarily be viewed as a negative event.

Question 2 Option contracts are used … 1 mainly as anticipatory hedges. 2 to hedge against operational risk. 3 to hedge against price changes in commodities. 4 to finance financial risks.

Question 3 Derivative risk arises from … 1 the failure of customers to pay back loans. 2 hedging activities. 3 the decrease in the value of financial portfolios due to market movements. 4 fluctuations in exchange rates.

Question 4 Derivatives aims to cover the following types of risks: a. Prices of commodities b. Foreign exchange rates c. Equity d. Interest rates

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Choose the correct combination: 1 a,b,c,d 2 a,b,c 3 b,c 4 c,d

Question 5 Credit risk comprises of: a. Default risk b. Recovery risk c. External risk d. Exposure risk Choose the correct combination: 1 a,b,c 2 a,b,d 3 a,c,d 4 a,b,c,d Question 6 According to the Basel Committee, 2003, operational risk results from … a. any non-financial risk exposure b. inadequate and failed internal processes c. failures caused by people and systems d. external events Choose the correct combination: 1 a,b,c,d 2 a,b,c 3 b,c,d 4 a,c Question 7 Non-financial risk include amongst others:

a. Country risks b. Strategic risks c. Reputational risk d. Operational risk Choose the correct combination: 1 a,b,c,d 2 a,b,c 3 a,c,d 4 b,c,d

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Question 8 An organization with a conservative approach towards risk has a(n) … attitude towards risk. 1 indifferent 2 risk-taking 3 risk-seeking 4 risk-averse Question 9 The key drivers that increased the risk profiles of organisations are amongst others: a. Less vigilant regulatory environment. b. Increased focus on governance. c. Globalisation. d. More sophisticated consumers. Choose the correct combination: 1 a,d 2 b,c,d 3 b,c 4 a,b,c,d Question 10 The top-down approach to the establishment of an operational risk management function … 1 defines the operational risk categories. 2 is the preferred method for the actual management of operational risk. 3 identify risk exposures. 4 involves all employees throughout the organisation. Question 11 The three pillars of operational risk management and corporate governance in terms of the new Basel Accord are …

1 compliance, supervision and reporting. 2 strategic planning, supervision and reporting. 3 regulatory capital requirements, supervision and market discipline. 4 risk identification, assessment and control.

Question 12

Technological risks can be prevented through data protection measures in the form of … 1 back-up systems 2 security measures. 3 firewalls. 4 password protection.

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Question 13 Which one of the following is an external operational risk driver? 1 Innovation. 2 Cost effectiveness. 3 Risk awareness 4 Reputation.

Question 14 Enterprise Risk Management (ERM) … 1 is considered a silo approach to the management of risk. 2 might limit the risk taking capabilities of enterprises. 3 should be driven within due cognisance of the overall risk appetite of the enterprise. 4 fails to address the interdependencies between different risk types in an efficient manner. Question 15

Market risks … a. are mainly classified as default, exposure and recovery risk. b. can be measured by Scenario analysis. c. are indirectly influenced by interest rate movements in the market. d. can be managed through the use of derivatives.

Choose the correct combination:

1 b,d 2 b,c,d 3 a,d 4 a,b,c,d

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ASSIGNMENT 02 : SEMESTER 02 Due date: 12 September 2016 Unique number: 721509



Study all the chapters in the prescribed book together with the corresponding material in the Unisa study guide. Answer the following questions and submit your assignment at https://my.unisa.ac.za

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This assignment contributes 50% towards your year mark. Question 1 Process Flow analysis is … 1 a quantitative approach to operational risk measurement. 2 a top-down approach to evaluating operational risk. 3 an objective risk evaluation method. 4 used to compile a risk map. Question 2 The risk exposure of a specific business activity when the control measures to reduce the potential effect of that activity are taken into account, is referred to as … risk. 1 residual 2 expected 3 inherent 4 key Question 3 Quantitative approaches to risk evaluation include amongst others: a. Database modelling b. Scenario formulation and analysis c. Stochastic modelling d. Causal modelling Choose the correct combination:

1 a,b,c,d 2 a,c,d 3 b only 4 a,c,d Question 4 Motor vehicle accidents for a business with a motor fleet may typically be … 1 classified as a high frequency/low severity losses. 2 best dealt with by accepting it as an operating expense. 3 ignored in terms of risk control decision-making. 4 best dealt with through third-party insurance. Question 5 Indicate the correct statements: a. Key risk indicators are main components of a data model for operational risk. b. Stochastic modelling aims to calculate the Value-at-Risk for an organisation. c. The Poisson distribution is used to estimate the frequency of operational risk events in the future. d. The Monte Carlo simulation model is used to determine the loss distribution for the impact of loss

events.

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Choose the correct combination:

1 a,b,c 2 a,b 3 a,c 4 a,c,d Question 6 Fraud is a(n) … of risk and requires … management. 1 upside proactive 2 upside reactive 3 downside proactive 4 downside reactive Question 7 Risk factors that are related to operational risk are … a. internal fraud. b. movement in prices of commodities. c. key person dependency. d. data theft. Choose the correct combination: 1 a,b,c,d 2 a,c,d 3 a,b,c 4 b,c,d Question 8 Control methods for operational risk include … management. a. Information security. b. Business continuity. c. Operational Value-at-Risk. d. Causal modelling. Choose the correct combination: 1 a,d 2 a,b 3 b,c 4 c,d Question 9 Indicate the correct equation:

1 Residual risk = inherent risk - controls 2 Inherent risk = residual risk - controls 3 Residual risk – inherent risk + controls 4 Inherent risk = residual risk

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Question 10 Indicate the correct statement with regard to risk reporting: 1 Senior management should be provided with a report on the risk profile of the organisation on a

daily basis. 2 The disclosure of the effectiveness of the organisation’s risk management strategy should

preferably be reported to stakeholders on an annual basis. 3 Information on short- and long term business opportunities should be provided to line managers

on a quarterly basis. 4 Key risk issues should be reported to line managers and risk officials on a monthly basis. Question 11 Insurance costs may include, amongst others, costs associated with: a. Statutory insurance. b. Captives. c. Insurance premiums. d. Handling of self-insured losses. Choose the correct combination: 1 a,c 2 a,b 3 a,b,c 4 a,b,c,d

Question 12 Indicate the correct statement with regard to risk financing: 1 Captives are considered as internal insurance. 2 Losses falling within the low frequency/high impact bracket are most suited to be financed

through internal funds. 3 Risk retention is considered a post-loss financing strategy. 4 Risk appetite is the maximum financial amount a business is capable to accept in terms of losses. Question 13 When the repro rate is increased by the government … 1 the money supply in the country is increased. 2 it normally have a boost effect on the economy. 3 consumers will have less money to spend on durables and investments. 4 the economy of the country will normally receive a boost. Question 14 Sources of information external to an organisation that can be used to identify risks include, amongst others, the following: a. Financial statements. b. External audits. c. Changes in legislation and regulations. d. Staff fraud.

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Choose the correct combination: 1 a,b,c,d 2 b,c 3 a,b,d 4 a,d Question 15 Intermediate monitoring of the operational risk management process is … 1 usually conducted by means of, amongst others, supervisory activities and reconciliation. 2 an ongoing process and focuses directly on the effectiveness of control measures. 3 done to identify problems on a real-time basis and encourages immediate corrective action. 4 done via, amongst others, internal audits and activity analysis.

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ANNEXURE C: SELF-ASSESSMENT ASSIGNMENT

This assignment is for self-assessment purposes only and must not be submitted. Complete the assignment questions after studying all the material in the prescribed book and study guide. Pay special attention to the suggested solutions and guidelines to these questions that will be posted on the discussion form as the semester progresses. The solutions will also be included in Tutorial letter 201. Evaluate your answers using the guidelines provided. Keep in mind that written questions will contribute 40 marks in the examination.

Aim: The purpose of this assignment is to test your knowledge and understanding of:


Study all the chapters in the prescribed book together with the corresponding material in the Unisa study guide.

Question 1 (10 marks)

Evaluate the accuracy of each of the following statements. Indicate whether you consider the statement accurate or not and provide a full motivation for your answer.

1.1 There is no upside to operational risk.

1.2 Where a bank is unable to meet unexpected demands for cash it means that the bank is illiquid and insolvent.

1.3 Risk appetite refers to the financial capacity of an organisation.

1.4 Expected losses such as a shortfall in petty cash should be financed through internal funding.

1.5 The investment in preventative controls can be considered as an upside of operational risk.

Question 2 (10 marks) List and explain the cost components that comprise the overall cost of risk for a business organisation. Question 3 (5 marks) Explain the nature and functions of derivatives in the financial markets and list three groups/types of derivatives.

RSK2602/101

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Question 4 (10 marks)

Identify and discuss the four primary operational risk factors that face business organisations. In your answer define each primary risk factor and explain its main drivers or components. Use examples to highlight your answer.

© UNISA 2015

Documents

RSK2602 - gimmenotes.co.za · RSK2602/101/3/2016 . Tutorial Letter 101/3/2016 Fundamentals of Operational and Financial Risk