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The Basel II exam takes the form of multiple choice, of which one of four choice answers is correct. Below are sample questions with answers:

Question 1. What is NOT correct about the Basel Committee on Banking Supervision?

Choice 1 - Formulates broad supervisory standards and guidelines and recommends statements of best practice.

Choice 2 - The Committee encourages standards – does not attempt detailed harmonization of member countries.

Choice 3 - Is an international supervisory authority.

Choice 4 - The Basel Committee was established in the aftermath of serious disturbances in international currency and banking markets, like the failure of Bankhaus Herstatt in West Germany.

Question 2. According to Basel I, banking organizations have to maintain at least a minimum level of capital. Which sentence is NOT correct?

Choice 1 - This minimum level of capital is a cushion against its unexpected losses.

Choice 2 - This minimum level of capital is important to promote public confidence in the banking system.

Choice 3 - If capital levels are too low, banks may fail, and put depositors’ funds at risk.

Choice 4 - In Basel I this minimum level of capital is optional. Banks could choose to make the most efficient use of their resources.

Question 3. The central focus of Basel I was:

Choice 1 - Credit risk.

Choice 2 - Credit Risk and Market Risk.

Choice 3 - Credit, Market and Operational Risk.

Choice 4 - Credit Risk and Reputational Risk.

Question 4. What is correct about Risk Weights?

Choice 1 - Risk weight functions translate a bank’s exposure into specific capital requirements.

Choice 2 - Risk weights are used to measure only credit risk and only after the Basel II framework.

Choice 3 - Risk weights are used to measure only market risk and only after the Basel II framework.

Choice 4 - Risk weights are used to measure only operational risk and only after the Basel II framework.

Question 5. According to Basel I, which is the Risk Weight for claims on central governments and central banks denominated in national currency and funded in that currency?

Choice 1 - 0%

Choice 2 - 20%

Choice 3 - 50%

Choice 4 - It depends on the rating. For example, in countries with sovereigns rated BB+ to B- and on banks in unrated countries the risk weight will be capped at 100% (Basel I)