Explanation:
Credit risk relates to borrowers or counterparties to contracts defaulting on their obligations. Market risk relates to losses (investment declines) from the bank's trading activities, and is evaluated on a shorter time horizon than credit risk and operational risk. Operational risk relates to the possibility of losses from external events or internal control failures.
(Book 3, Module 27.1, LO 27.a)
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Question 32
A bank manager is preparing a white paper on the topic of risk for the CEO of the bank. The focus of the paper is on the three primary types of risk exposure and how they should be managed going forward. Each of the following descriptions contained in the paper is accurate except:
A
a bank’s credit risk relates to its ability to secure a strong credit rating.
B
concerns over losses on trading activities from declines in investments links to market risk.
C
market risk is evaluated on a shorter time horizon than both credit risk and operational risk.
D
operational risk includes both losses due to events outside of the bank and internal control failures.
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