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Free Questions › CTP › Financial, Regulatory and Operational Risk
Free CTP Financial, Regulatory and Operational Risk Practice Questions & Answers
150 exam-style Financial, Regulatory and Operational Risk questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 31
In an insurance policy, the deductible is:
Select an option first.
Correct answer: A — The amount of loss the insured must bear before the insurer begins paying
Explanation: The deductible is the portion of a covered loss the insured retains before coverage responds. Higher deductibles typically lower premiums because the insured absorbs more of the frequent, smaller losses.
Question 32
Self-insurance (risk retention) means that a company:
Select an option first.
Correct answer: B — Sets aside its own funds to pay for anticipated losses instead of purchasing external coverage
Explanation: Self-insurance is a form of risk retention in which the company funds expected losses internally, often through reserves or a captive, rather than transferring them to an insurer. It can lower costs for predictable, high-frequency, low-severity losses but exposes the firm to volatility.
Question 33
A captive insurance company is:
Select an option first.
Correct answer: D — An insurer owned by the parent company to insure the parent's own risks
Explanation: A captive is a wholly owned subsidiary formed to insure the risks of its parent (and affiliates), formalizing self-insurance while potentially providing access to reinsurance markets and tax and cost efficiencies. It gives the parent greater control over coverage and claims than the commercial market.
Question 34
Cyber insurance is increasingly relevant to treasury because it can help cover losses from:
Select an option first.
Correct answer: A — Data breaches, ransomware, and certain funds-transfer fraud events (subject to policy terms)
Explanation: Cyber insurance policies can respond to breach response costs, ransomware, business interruption, and, under some policies and endorsements, social-engineering or funds-transfer fraud losses, subject to conditions. It has become an important complement to the controls treasury uses against payment fraud and cyber events.
Question 35
A company experiences 12 fraudulent check attempts in a year totaling $480,000. Its positive pay system catches 11 of them worth $455,000, but one check for $25,000 clears because the issue file was uploaded late. What is the fraud loss avoidance rate by dollar value?
Select an option first.
Correct answer: D — About 94.8%
Explanation: Avoidance by value = amount stopped / total attempted = $455,000 / $480,000 = 0.9479, or about 94.8%. The single $25,000 item that cleared represents roughly 5.2% of the attempted fraud value, illustrating how a late issue-file upload defeats the control.
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Question 36
A firm has a $5,000,000 exposure to a customer with a probability of default of 2% and a loss given default of 40%. What is the expected loss?
Select an option first.
Correct answer: C — $40,000
Explanation: Expected loss = PD x LGD x EAD = 0.02 x 0.40 x $5,000,000 = $40,000. This standard formula combines the likelihood of default with the fraction not recovered and the size of the exposure.
Question 37
A bank counterparty has an exposure at default of $10,000,000, a probability of default of 0.5%, and an expected recovery rate of 60%. What is the expected loss?
Select an option first.
Correct answer: A — $20,000
Explanation: LGD = 1 - recovery rate = 1 - 0.60 = 0.40. Expected loss = PD x LGD x EAD = 0.005 x 0.40 x $10,000,000 = $20,000. The recovery assumption directly reduces the loss given default component.
Question 38
A firm's policy caps exposure to any single supplier at 15% of annual cost of goods sold (COGS). If COGS is $80,000,000 and current purchases from Supplier X total $10,500,000, how much additional business can be placed with Supplier X within the limit?
Select an option first.
Correct answer: B — $1,500,000
Explanation: The concentration limit is 15% x $80,000,000 = $12,000,000. Current purchases are $10,500,000, so the remaining capacity is $12,000,000 - $10,500,000 = $1,500,000 of additional business before the cap is reached.
Question 39
A merchant processes $250,000 in card sales across 5,000 transactions. Its cost is 1.8% of volume plus $0.10 per transaction. What is the total processing cost?
Select an option first.
Correct answer: D — $5,000
Explanation: Percentage cost = 1.8% x $250,000 = $4,500; per-transaction cost = 5,000 x $0.10 = $500; total = $4,500 + $500 = $5,000. Blended card costs combine an ad valorem rate and a fixed per-item fee.
Question 40
A merchant pays $6,300 in total card fees on $350,000 of card sales. What is its effective (blended) discount rate?
Select an option first.
Correct answer: B — 1.8%
Explanation: Effective rate = total fees / total sales = $6,300 / $350,000 = 0.018 = 1.8%. The effective discount rate expresses all processing costs as a single percentage of card volume for easy comparison.
Question 41
A merchant has 40 chargebacks in a month on 8,000 transactions. If card networks flag merchants exceeding a 1% chargeback ratio, is this merchant over the threshold, and what is the ratio?
Select an option first.
Correct answer: A — 0.5%, under the threshold
Explanation: Chargeback ratio = chargebacks / transactions = 40 / 8,000 = 0.005 = 0.5%, which is below the 1% threshold. Monitoring this ratio helps merchants avoid network monitoring programs and penalties.
Question 42
A bank holds $180 million in high-quality liquid assets and projects $150 million in net cash outflows over a 30-day stress period. What is its Liquidity Coverage Ratio?
Select an option first.
Correct answer: B — 120%
Explanation: LCR = HQLA / net cash outflows = $180M / $150M = 1.20 = 120%. This exceeds the 100% regulatory minimum, indicating the bank holds a surplus of liquid assets relative to modeled stressed outflows.
Question 43
A bank reports available stable funding (ASF) of $800 million and required stable funding (RSF) of $640 million. What is its Net Stable Funding Ratio (NSFR), and does it meet the 100% minimum?
Select an option first.
Correct answer: D — 125%, meets the minimum
Explanation: NSFR = ASF / RSF = $800M / $640M = 1.25 = 125%, comfortably above the 100% minimum. The NSFR promotes funding stability over a one-year horizon, complementing the 30-day LCR.
Question 44
A portfolio has a 1-day VaR of $100,000. Assuming returns are independent and identically distributed, what is the approximate 10-day VaR using the square-root-of-time rule?
Select an option first.
Correct answer: C — $316,228
Explanation: Under the square-root-of-time rule, VaR scales with the square root of the horizon: 10-day VaR = $100,000 x sqrt(10) = $100,000 x 3.1623 = $316,228. This assumes independent, identically distributed returns with no autocorrelation.
Question 45
A $10,000,000 portfolio has a daily return standard deviation of 1.5%. Using the parametric method and a 95% confidence level (z = 1.645), what is the approximate 1-day VaR?
Select an option first.
Correct answer: A — $246,750
Explanation: Parametric VaR = portfolio value x z-score x daily volatility = $10,000,000 x 1.645 x 0.015 = $246,750. The z-score of 1.645 corresponds to the 95% one-tailed confidence level under a normal distribution.
Question 46
A hedge's value changed by -$95,000 while the hedged item's value changed by +$100,000 over the period. Using the dollar-offset method, what is the hedge effectiveness ratio, and does it fall within the traditional 80%-125% band?
Select an option first.
Correct answer: C — 95%, within the band
Explanation: Dollar-offset ratio = |change in hedge| / |change in hedged item| = $95,000 / $100,000 = 0.95 = 95%, which lies inside the traditional 80%-125% effectiveness range. This indicates the hedge is highly effective at offsetting the hedged item's movement.
Question 47
A bond position has a DV01 (dollar value of a basis point) of $2,500. If interest rates rise by 15 basis points, what is the approximate change in the position's value?
Select an option first.
Correct answer: D — A loss of $37,500
Explanation: DV01 measures value change per one basis point; for a 15 bp rise, change = 15 x $2,500 = $37,500. Because bond prices fall when rates rise, the position loses approximately $37,500.
Question 48
A company self-insures the first $250,000 of any liability loss and carries commercial coverage above that up to $5,000,000. If a covered loss totals $900,000, how much does the commercial insurer pay?
Select an option first.
Correct answer: A — $650,000
Explanation: The company retains the first $250,000, so the insurer pays the excess: $900,000 - $250,000 = $650,000, which is within the $5,000,000 limit. This layered structure blends self-insured retention with excess commercial coverage.
Question 49
An insurer collects $2,000,000 in premiums for a line of business and pays $1,500,000 in claims. What is the loss ratio?
Select an option first.
Correct answer: C — 75%
Explanation: Loss ratio = claims paid / premiums earned = $1,500,000 / $2,000,000 = 0.75 = 75%. A loss ratio below 100% means premiums exceeded claims for that line, before accounting for expenses.
Question 50
A company pays an annual premium of $120,000 for coverage with a $50,000 deductible per claim. During the year it experiences two covered claims of $200,000 and $30,000. Counting premium plus what the firm pays on each claim, what is the company's total out-of-pocket cost for the year?
Select an option first.
Correct answer: C — $200,000
Explanation: Premium is $120,000. On the $200,000 claim the firm pays the $50,000 deductible; the $30,000 claim is fully below the $50,000 deductible, so the firm pays all $30,000. Total out-of-pocket = $120,000 + $50,000 + $30,000 = $200,000.
Question 51
A bank holds $95 million in high-quality liquid assets against $100 million of net cash outflows over the 30-day stress period. What is its Liquidity Coverage Ratio, and does it satisfy the Basel III minimum?
Select an option first.
Correct answer: A — 95%, below the 100% minimum
Explanation: LCR = HQLA / net cash outflows = $95M / $100M = 0.95 = 95%. Because this is below the 100% regulatory minimum, the bank holds insufficient liquid assets for the modeled 30-day stress and would need to raise HQLA or reduce outflows.
Question 52
A U.S. firm holds a receivable of 5,000,000 euros, currently valued at an exchange rate of 1.10 USD per euro. If the euro depreciates by 2% against the dollar, what is the approximate USD loss on the receivable?
Select an option first.
Correct answer: C — $110,000
Explanation: Current USD value = 5,000,000 x 1.10 = $5,500,000. A 2% adverse move reduces value by 0.02 x $5,500,000 = $110,000. The dollar value of the foreign-currency receivable falls as the euro weakens against the dollar.
Question 53
A treasury policy states that no counterparty bank may hold more than 20% of the firm's total invested cash and that all instruments must carry a minimum rating of A-1/P-1. During a period of rapid cash inflows, the only A-1 counterparties available would each require holding 30% of the portfolio. What is the most policy-consistent action?
Select an option first.
Correct answer: C — Seek a documented policy exception with appropriate approval, or hold excess in a permitted government money market fund
Explanation: When two policy constraints conflict, the treasurer should not silently breach either limit; the correct path is a documented, approved exception or use of another compliant vehicle such as a government money market fund that diversifies without violating rating rules. Breaching concentration or rating limits without authorization undermines the control framework and governance.
Question 54
Why do strong treasury policies require periodic review and re-approval by the board or a designated committee rather than remaining static?
Select an option first.
Correct answer: A — Because market conditions, regulations, the firm's risk appetite, and counterparty landscape change over time
Explanation: Risk appetite, permissible instruments, regulatory requirements, and the creditworthiness of counterparties all evolve, so a policy that is not periodically reassessed can become misaligned with actual risk. Board or committee re-approval ensures governance oversight and keeps the framework current; none of the other options reflect real requirements.
Question 55
A newly hired treasury analyst notices that the same person initiates ACH batches, releases them, and reconciles the bank account. Which policy principle is most directly violated?
Select an option first.
Correct answer: D — Segregation of duties
Explanation: Allowing one individual to initiate, release, and reconcile payments concentrates incompatible functions and enables fraud to go undetected. Segregation of duties requires that these responsibilities be split among different people so that no single person controls a transaction end to end.
Question 56
A firm's investment policy allows commercial paper but is silent on asset-backed commercial paper (ABCP). The treasurer wants to buy ABCP. What is the most prudent interpretation?
Select an option first.
Correct answer: C — Treat instruments not explicitly authorized as prohibited until the policy is formally amended to address them
Explanation: Best practice treats an investment policy as a permissive list: instruments not explicitly authorized should be considered prohibited until governance formally evaluates and adds them. ABCP carries different structural and credit risks than plain commercial paper, so it warrants explicit policy consideration before use.
Question 57
A vendor emails a request to update its bank account for future ACH payments. Following best-practice controls, the payables team should:
Select an option first.
Correct answer: A — Verify the change by calling the vendor at a known, previously verified phone number using out-of-band confirmation
Explanation: Bank-change requests are a hallmark of BEC and vendor impersonation fraud, so the change must be verified out-of-band using contact details already on file, not those supplied in the request. Replying to the same email confirms nothing because the fraudster controls that inbox.
Question 58
Payee positive pay adds which capability beyond standard positive pay?
Select an option first.
Correct answer: C — It verifies the payee name on the check against the issue file, not just the check number and amount
Explanation: Standard positive pay matches serial number and amount; payee positive pay additionally compares the payee name to the issued file, catching fraud where a check is altered to change the payee while keeping the amount unchanged. It does not affect funds availability or eliminate reconciliation.
Question 59
Under UCC Article 4A, if a bank and its customer agreed to a commercially reasonable security procedure for wire transfers and the bank followed it in good faith, a fraudulent payment order that the customer did not actually authorize is generally:
Select an option first.
Correct answer: C — Effective against the customer (the customer bears the loss) if the order was verified per the agreed procedure
Explanation: UCC Article 4A allocates loss based on security procedures: if the bank and customer agreed to a commercially reasonable procedure and the bank accepted the order in good faith and in compliance with it, the order is treated as authorized and the customer bears the loss. This underscores why customers must adopt and follow strong verification controls.
Question 60
Which combination of controls most effectively mitigates the risk that a single treasury employee both creates a fictitious vendor and pays it?
Select an option first.
Correct answer: C — Segregation of duties between vendor master maintenance and payment approval, plus periodic independent vendor audits
Explanation: Fictitious-vendor fraud is defeated by separating the ability to add or change vendors from the ability to approve payments, reinforced by independent review of the vendor master file. Risk-measurement tools and limit changes do not address this internal control gap.
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