Practice Question Set: Stress Testing

Topic Progress:

Chapter 8. Stress Testing Practice Question set contains 13 pages covering the following learning objectives:

* Describe the rationale for the use of stress testing as a risk management tool.

* Identify key aspects of stress testing governance, including choice of scenarios, regulatory specifications, model building, stress-testing coverage, capital and liquidity stress testing, and reverse stress testing.*

* Describe the relationship between stress testing and other risk measures, particularly in enterprise-wide stress testing.

* Explain the importance of stressed inputs and their importance in stressed VaR and stressed ES.

* Identify the advantages and disadvantages of stressed risk metrics.

* Describe the key elements of effective governance over stress testing.

* Describe the responsibilities of the board of directors and senior management in stress testing activities.

* Identify elements of clear and comprehensive policies, procedures, and documentations for stress testing.

* Identify areas of validation and independent review for stress tests that require attention from a governance perspective.

* Describe the important role of the internal audit in stress testing governance and control.

* Describe the Basel stress testing principles for banks regarding the implementation of stress testing.*

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