Operational risk

An operational risk loss event database provides historical data necessary to model the frequency and severity of operational losses, which helps determine economic capital requirements. In contrast, this database is irrelevant to stock picking (C) or marketing (A), which rely on market valuation metrics and customer data rather than internal operational failure records.

Risk-weighted assets are used under Basel regulations to determine the minimum amount of regulatory capital a bank must maintain to cover its risk exposure. Distractors like tax payable are incorrect because taxes are calculated based on taxable net income rather than asset risk profiles.

Operational risk is defined by Basel standards as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !Options like A, C, and D are incorrect because they represent market and credit risks, which are managed separately.
• !Distractors like tax payable are incorrect because taxes are calculated based on taxable net income rather than asset risk profiles.

Answer each from memory — you'll see instantly whether you're right and why.

Run a focused 10-question mini-mock on Operational risk and see it stick.