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Answer: Analyzing correlation and volatility assumptions in a bank's VaR models
## Explanation **A is correct** because analyzing volatility and correlation assumptions is an appropriate responsibility for an audit function. The audit function should independently review and validate the key assumptions used in risk models like VaR to ensure their accuracy and appropriateness. **B is incorrect** because implementing risk management policies related to stock-based compensation is typically performed by senior management or the risk management group, not the audit function. **C is incorrect** because monitoring risk exposures on a day-to-day basis for adherence to concentration limits is performed by the risk management function, which is responsible for ongoing risk monitoring. **D is incorrect** because processing confirmations and settlements for trades is performed by the operations function, which handles trade processing and settlement activities. The audit function's role in risk management is primarily focused on independent validation, review, and assurance rather than operational implementation or day-to-day monitoring.
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National regulators in an emerging market country are developing guidelines for appropriate risk management responsibilities for different business functions at the country's banks. A regulatory analyst is asked to prepare a report recommending best practices for the firm-wide risk management, audit, and operations functions. Which of the following should the analyst recommend as an appropriate responsibility of the audit function?
A
Analyzing correlation and volatility assumptions in a bank's VaR models
B
Implementing risk management policies related to stock-based compensation
C
Monitoring risk exposures on a day-to-day basis for adherence to a bank's concentration limits
D
Processing confirmations and settlements for trades executed by a bank
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