504.1. According to the Principles for sound stress testing practices and supervision by BIS, when is stress testing especially important? a) When new regulations such as Basel III or Dodd-Frank are introduced and implemented b) During periods of expansion or long periods of benign economic and financial conditions c) During a corporate transaction such as a merger, especially if key executive roles are changing d) Immediately after a market crisis because the standard models will be less useful when systemic input assumptions are depressed 504.2. About stress testing methodologies, BIS writes, "Stress tests cover a range of methodologies. Complexity can vary, ranging from simple sensitivity tests to complex stress tests, which aim to assess the impact of a severe macroeconomic stress event on measures like earnings and economic capital. Stress tests may be performed at varying degrees of aggregation, from the level of an individual instrument up to the institutional level. Stress tests are performed for different risk types including market, credit, operational and liquidity risk. Notwithstanding this wide range of methodologies, the crisis has highlighted several methodological weaknesses." According to BIS, which were the primary WEAKNESSES of stress testing methodologies during the crisis? a) Most models relied on historical statistical relationship and insufficiently aggregated risks across the firm, often due to infrastructure limitations b) Too many scenarios were overly complex such that participants often did not understand the output; and the output was not communicated in an easy-to-understand manner c) Due to lack of general quantitative aptitude at the executive level, too often the subjective or qualitative judgment of so-called experts was utilized instead of objective data d) Scenarios tended to emphasize extremely severe market events, sometimes exaggerated beyond all realism, and therefore ironically ignored more plausible but mundane scenarios 504.3. When developing a stress testing program, according to BIS, each of the following elements or component is essential EXCEPT which is not? a) Reverse stress test b) System-side interactions and feedback effects c) Rigorously estimated ex ante probabilities of stress events based on statistical relationships

d) Imaginative and forward-looking scenarios informed by the judgment of experts across the organization

800.1. In the wake of the global financial crisis (GFC), stress testing has received prominent media attention. Siddique and Hasan explain that "stress testing has many approaches. For example, at many institutions, finance and treasury have had ownership of the budgeting process. Hence, centralized stress testing could be housed in such a central function. Other institutions have taken a more decentralized approach, wherein the central function has only acted as an aggregator. Effective stress testing does not need a given organisational form or approach. However, a given organisational form will require certain aspects to ensure effectiveness. For example, in a decentralized approach towards stress testing, consistency across the organisation becomes important, and the institution will need to find ways of ensuring that consistency." Each of the following statements is true about stress testing EXCEPT which is false? a) Stress testing is a non-statistical risk measure that may employ scenario analysis as one approach b) An acceptable proxy for stress testing is to generate value at risk (VaR) with a series of progressively increasing confidence levels; e.g., 99.0%, 99.50%, 99.75%, 99.90%, and 99.99% c) While backtesting validates model parameter(s) using a large number of actual, historical observations; stress testing on the other hand uses a small number of extreme movements in market variables d) Unlike value at risk (VaR) which indicates neither the magnitude nor shape of extreme losses beyond the VaR threshold, stress testing DOES attempt to characterize the magnitude/shape of the extreme loss tail

800.2. Phillip is developing a "Roles and Responsibilities" framework for his firm's stress testing program. His checklist includes the following key responsibilities: I. Perform regular reporting of stress-testing results II. Ensure alignment between firm's risk appetite and stress testing activities III. Ensure the firm's stress test exercises are all built on identical assumptions and utilize the same information and inputs IV. Should be at least well-versed, if not expert, in the details of stress testing and be able to drill down to discuss technical details and challenge exercise results on a granular level Between the board and senior management, who has primary responsibility of the above activities? a) I. Board, II. Management, III. Both, IV. Both b) I. Board, II. Management, III. Both, IV. Neither c) I. Management, II. Management, III. Board, IV. Board d) I. Management, II. Board, III. Neither, IV. Management 800.3. Zotstreet International is an international financial services firm. The key elements of of its stress testing program include: (i) a governance structure; (ii) policies and procedures; (iii) validation and independent review; and (iv) internal audit. The firm's stress testing policies are approved and annually reassessed by the board. The stress test results are considered directly for decisions relating to capital and liquidity adequacy, including capital contingency plans and contingency funding plan. The firm conducts stress tests internally, under the direction of the Chief Risk Officer (CRO) and her staff in the risk management function, but also retains a thirdparty vendor to conduct complementary stress tests. The third-party's approach invokes proprietary intellectual capital such that the details of their approach are neither documented nor available for review by Acme, but the summary results are disclosed. Management gives the firm's risk managers (in the risk management function) the flexibility to conduct ad hoc stress tests in order to address rapidly emerging risks and vulnerabilities. Based on these summary facts, which of the following statements is most TRUE about Zotstreet's stress testing program (best answer please)? a) Zotstreet appears to have a deficiency with respect to documentation b) Zotstreet should not be delegating any stress testing to a third party c) Zotstreet approach appears to generally reflect best practices and include all of the key elements of an effective governance over stress testing d) Zotstreet approach appears to generally reflect best practices EXCEPT the board should re-assess the firm's stress testing policies at least once per quarter

801.1. Which of the following statements is TRUE about the role of validation in stress testing governance? a) Stress that cannot be fully validated should not be used b) Stress-test estimates should be continuously backtested against realized outcomes because quantitative backtest results are a common, critical validation metric c) Expert-based judgement should be applied to ensure that test results are intuitive and logical, and to add additional perspective on stress-test performance d) If a model fails to perform strongly in the data-rich environment of a baseline (e.g., good times) setting, then it cannot be trusted to estimate stressed outcomes 801.2. Which of the following statements is TRUE about the role of internal audit in stress testing governance? a) Internal audit should independently assess each stress test used b) Internal audit is the "first line of defense" in stress testing governance c) Internal audit should have have full knowledge of all stress-test details d) Internal audit should assess the expertise and roles and responsibilities of the staff involved in stress-testing activities 801.3. Key aspects of stress testing governance include coverage, types (and approaches) and capital/liquidity. Each of the following is true about these three general aspects EXCEPT which of the following statements is inaccurate? a) Types and approaches: Even if it is difficult to estimate their likelihood, REVERSE stress tests that "break the bank" deserve consideration b) Types and approaches: Scenarios should not be too severe, as severity may stretch credibility with shareholders. If the scenario challenges the institution's viability, then it is probably too severe c) Capital and liquidity: Stress testing for capital/liquidity adequacy should be coordinated with annual planning cycles and should be refreshed in the event of a major strategic decision d) Coverage: Good stress testing coverage includes (i) inclusion of portfolios, exposures, liabilities and business-line activities; (ii) various LEVELS of the organization; (iii) interplay between exposures; and (iv) various time horizons

Please do all the questions and not just one question..... If you can't please leave it for other experts.... Else I will give a downvote.... ans answer only if you are 100% confident as I am getting many incorrect answers recently(103).