What to know
Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.
Portfolio Management
Introduction to Risk Management practice questions
Introduction to Risk Management is part of CFA Level I Portfolio Management. Portfolio Management questions connect risk and return, asset allocation, CAPM, IPS constraints, behavioral biases, performance, and risk management. Use this page to review the controlling ideas, then work through 13 questions with answer explanations and common traps.
Review the worked explanations before moving into adaptive practice. The app version can mix this topic with due reviews and weak related concepts.
Practice this topicHow to practice
Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.
Review signal
Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.
Portfolio Management
Introduction to Risk Management
A securities firm suffers a large loss when an employee circumvents internal controls to conceal unauthorized trades. This loss is best classified as arising from:
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Introduction to Risk Management
Within an organization's risk management framework, deciding which risks the organization is willing to pursue, which risks it should avoid, and how much total loss it can withstand is best described as establishing:
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Introduction to Risk Management
A chemicals producer faces the possibility of a plant explosion that is very unlikely in any given year but would be financially catastrophic if it occurred. Third-party insurance is available at a premium close to the actuarially fair level. The most appropriate risk treatment is to:
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Introduction to Risk Management
A chief investment officer expresses the fund's total risk appetite as a 10% annual volatility target and allocates that total among equity beta, duration, and currency factor exposures, sizing positions by their contributions to risk rather than by capital amounts. This practice is best described as:
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Introduction to Risk Management
Risk management is most accurately defined as the process of:
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Introduction to Risk Management
A board member reviews a risk report showing a one-month 5% value at risk of EUR 8 million and concludes, 'Our maximum possible loss in any month is EUR 8 million.' The statement is most accurately criticized because VaR:
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Introduction to Risk Management
A risk committee sets a maximum 95% one-day VaR limit for a trading desk and requires daily reporting against the limit. These actions are best described as part of:
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Introduction to Risk Management
A portfolio has a one-day 95% VaR of 4 million. The most accurate interpretation is that:
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Introduction to Risk Management
A company buys insurance to reduce the financial effect of property damage from natural disasters. This risk modification method is best described as:
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Introduction to Risk Management
A risk manager estimates normal-market VaR and then separately evaluates losses from a 30% equity market decline and a sudden credit spread widening. The second exercise is best described as:
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Introduction to Risk Management
An investment firm allocates a fixed amount of tracking error to each strategy and monitors whether each team stays within its assigned risk allowance. This practice is best described as:
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Introduction to Risk Management
A portfolio manager uses an equity futures position to reduce exposure to a broad equity market decline. This action is best described as:
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Introduction to Risk Management
A 50 million portfolio has daily standard deviation of 1.0%. Assuming a normal distribution and using a 2.33 z-score, the one-day 99% VaR is closest to:
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