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Financial Risk Manager Part 1

Financial Risk Manager Part 1

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A team of risk assessment professionals is conducting an objective audit of a recently conducted stress test. During this audit, they are scrutinizing the models employed for the stress testing as well as the foundational assumptions of these models. From the options provided, identify the most critical flaw that the analysts should highlight regarding the models or their assumptions if such a flaw is detected during their review.

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Explanation:

C is correct. In addition to a scenario's immediate impacts, analysts should consider its knock-on effects, or the impacts of how firms (particularly other financial institutions) respond to the scenario.

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