Which one of the following four statements correctly identifies disadvantages of using the economic capital?
What are the add-on losses faced by a bank that is going bankrupt?
I. The discount accepted by the bank for selling its assets in a fire sale.
II. The increased cost of funding liabilities in a financially distressed situation.
III. The reduction in the present value of future growth opportunities.
IV. Loss of goodwill and intangible assets.
Which of the following bank events could stress the bank's liquidity position?
I. Obligations to fund assets like mortgages
II. Unusually large depositor withdrawals
III. Counterparty collateral calls
IV. Nonperforming assets
According to the principles of the Basel II Accord, the implementation and relative weights of the elements of the operational risk framework depend on:
I. The culture of the financial institution
II. Regulatory drivers
III. Business drivers
IV. The bank's reporting currency
Operational risk team for a large international bank is implementing business continuity planning (BCP). Which of the following BCP activities fall within the definition of operational risk and represent Basel II Accord's operational risk categories:
I. Damage to Physical Assets
II. Business Disruption and System Failures
III. Social Distancing Requirements
IV. Potential for Extreme Losses
A risk associate responsible for the operational risk function wants to evaluate the upward reporting governance structure and to assess its critical features. Which one of the four attributes does not represent a critical feature of the upward reporting governance structure?
Which one of the following four metrics represents the difference between the expected loss and unexpected loss on a credit portfolio?
As DeltaBank explores the securitization business, it is most likely to embrace securitization to:
I. Bring transparency to the bank's balance sheet
II. Create a new profit center for the bank
III. Strategically release risk capital and regulatory capital for redeployment
IV. Generate cash for additional debt origination
In the United States, foreign exchange derivative transactions typically occur between
Counterparty credit risk assessment differs from traditional credit risk assessment in all of the following features EXCEPT:
Changes to which one of the following four factors would typically not increase the cost of credit?
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's exposure at default (EAD) be?
Which of the following risk types are historically associated with credit derivatives?
I. Documentation risk
II. Definition of credit events
III. Occurrence of credit events
IV. Enterprise risk
Which one of the following four mathematical option pricing models is used most widely for pricing European options?
To safeguard its capital and obtain insurance if the borrowers cannot repay their loans, Gamma Bank accepts financial collateral to manage its credit risk and mitigate the effect of the borrowers' defaults. Gamma Bank will typically accept all of the following instruments as financial collateral EXCEPT?
The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential failure of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed, the principal and the contractual interest payments, would be called ___.
A credit analyst wants to determine a good pricing strategy to compensate for credit decisions that might have been made incorrectly. When analyzing her credit portfolio, the analyst focuses on the spreads in each loan to determine if they are sufficient to compensate the bank for all of the following costs and risks EXCEPT.
A bank customer chooses a mortgage with low initial payments and payments that increase over time because the customer knows that she will have trouble making payments in the early years of the loan. The bank makes this type of mortgage with the same default assumptions uses for ordinary mortgages, thus underestimating the risk of default and becoming exposed to:
Which one of the following statements about futures contracts is correct?
I. Futures contracts are subject to the same risks as the underlying instruments.
II. Futures contracts have additional interest rate risk die to the future delivery date.
III. Futures contracts traded in a clearinghouse system are exposed to credit risk with numerous counterparties.
Which one of the four following statements about back testing the VaR models is correct?
Back testing requires
When trading exotic options, one needs to consider the following risks:
I. Spot foreign exchange risks
II. Forward foreign exchange risks
III. Plain vanilla options risks
IV. Option-specific risks
In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the entire trading day. Which of the following factors would most likely affect foreign exchange option values?
I. Change in the value of the underlying
II. Change in the perception of future volatility
III. Change in interest rates
IV. Passage of time
Which one of the following four statements regarding floating rate bonds is incorrect?
Which one of the following statements is an advantage of using implied volatility as an input when calculating VaR?
Since most consumers of natural gas do not have the ability to store it, they contract with gas suppliers to receive a flow of natural gas equal to a specific number of MMBT's per day (MMBT is millions of British Termal Units, the unit in which gas futures are quoted on the U.S. markets). To protect against price increases with a bank, the natural gas consumer, concerned with the average price over the course of the month, will use the following contracts:
An endowment asset manager with a focus on long/short equity strategies is evaluating the risks of an equity portfolio. Which of the following risk types does the asset manager need to consider when evaluating her diversified equity portfolio?
I. Company-specific projected earnings and earnings risk
II. Aggregate earnings expectations
III. Market liquidity
IV. Individual asset volatility
Which one of the following four statements regarding commodity exchanges is INCORRECT?
Which of the following measure describes the symmetry of a statistical distribution?
Which one of the following four statements best describes challenges of delta-normal method of mapping options positions?
Delta-normal method understates
To estimate the responsiveness of a particular equity portfolio to the overall market, a trader should use the portfolio's
A portfolio manager is interested in computing risk measures for his bond investment portfolio. Which of the following measures the sensitivity of duration to interest rates?
Oliver McCarthy owns a portfolio of bonds. Which of the following choices equals the modified duration of Oliver's portfolio?
Which one of the following four statements regarding commodity derivative risks is INCORRECT?
In analyzing the historical performance of a financial product, you are concerned about "fat tails", the probability of extreme returns compared to realized returns. Which of the following measures should you use to determine if the product return distribution of the product has "fat tails"?
Which one of the following four attributes would likely help a trader using exchange-traded options to establish a leveraged position?
Which of the following statements describes correctly the objectives of position mapping ?
Which one of the following four exercise features is typical for the most exchange-traded equity options?
The exercise for an American type option prior to expiration day is virtually certain in the following case:
The operational risk policy should include:
I. The firm's definition of risk
II. The governance of operational risk including who owns it, what it owns, and how issues should be escalated
III. The main activities and elements that are managed by the operational risk function
Which of the following statements explain how securitization makes the retail assets highly liquid and the balance sheet easier to manage?
I. By securitizing assets any lack of capital can be accommodated by selling the securitized bonds.
II. Any need to diversify credit risk can be achieved by selling bank's own securitized bonds and buying other bonds that increase diversification.
III. Securitization could be used to promote hedging by using limited market instruments.
Which one of the four following non-statistical risk measures are typically not used to quantify market risk?
Which one of the following four statements correctly identifies the Basel II Accord's definition of operational risk?
Which of the following statements about implementation of a successful RCSA program is correct?
US based Alpha Bank holds European corporate bonds and US inflation–indexed Treasury notes in its investment portfolio. This investment portfolio is not exposed to changes in which of the following?
What is the role of market risk management function within a bank?
I. Control and minimize the risks the bank should take.
II. Establish a comprehensive market risk policy framework.
III. Define, approve and monitor risk limits.
IV. Perform stress tests and other qualitative risk assessments.