Financial Risk Manager Part 1
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In an attempt to promote and institute strong and effective data aggregation capabilities, the Basel committee has put forth several principles. Which of the following principles is correctly matched with a recommendation to be followed in accordance with the given principle?
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A
The timeliness principle recommends that an organization should continually update its system to accommodate changes in best practices.
B
The accuracy principle recommends that the risk data be reconciled with the supervisor's estimates before aggregation.
C
The integrity principle recommends that only automated processes should be used when aggregating risk data.
D
The completeness principle recommends that an organization should ensure it captures all material risk exposures before risk data aggregation can be done.
Explanation:
Explanation
The correct answer is D because the completeness principle, as outlined by the Basel Committee, emphasizes the importance of capturing all material risk exposures before proceeding with risk data aggregation. This principle is crucial because it ensures that no significant risk is overlooked during the aggregation process, which could potentially lead to inaccurate risk assessments and flawed decision-making.
Why other options are incorrect:
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Choice A is incorrect: The timeliness principle does not recommend that an organization should continually update its system to accommodate changes in best practices. Instead, it recommends that risk data should be available when needed, even during times of stress/crisis.
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Choice B is incorrect: The accuracy principle does not recommend that the risk data be reconciled with the supervisor's estimates before aggregation. Rather, it suggests that risk data should be accurate and reliable; it doesn't necessarily need to match with supervisor's estimates.
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Choice C is incorrect: The integrity principle does not recommend that only automated processes should be used when aggregating risk data. The integrity principle focuses on ensuring that risk data aggregation processes are robust and reliable, but it doesn't mandate exclusive use of automated processes.
The completeness principle ensures comprehensive risk coverage by requiring organizations to capture all material risk exposures before aggregation, providing a complete and accurate picture of the organization's overall risk profile.
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