Exam 15: Market Risk

Market risk measurement considers the return-risk ratio of traders, which may allow a more rational compensation system to be put in place. Thus market risk measurement (MRM) aids in

City bank has six-year zero coupon bonds with a total face value of $20 million. The current market yield on the bonds is 10 percent. What is the daily value at risk (VaR) of this bond portfolio?

Which term defines the risk related to the uncertainty of an FI's earnings on its trading portfolio caused by changes, and particularly extreme changes in market conditions?

Banks in the countries that are members of the BIS must use the standardized framework to measure market risk exposures.

City bank has six-year zero coupon bonds with a total face value of $20 million. The current market yield on the bonds is 10 percent. What is the modified duration of these bonds?

The JPM Risk Metrics model is based on the assumption of a binomial distribution of asset returns.

If a stock portfolio replicates the returns on a stock market index, the beta of the portfolio will be

Which of the following is a problem encountered while using more observations in the back simulation approach?

Although global financial markets deteriorated during the summer of 2009, by September of that year the banking system had returned to normal operation.

The mean change in the value of a portfolio of trading assets has been estimated to be 0 with a standard deviation of 20 percent. Yield changes are assumed to be normally distributed. What is the maximum yield change expected if a 95 percent confidence (one-tailed) limit is used?

Consider the following discrete probability distributions of payoffs for 3 securities that are held in a DI's trading portfolio (payoff amounts shown are in $millions): What is the expected payoff, the 99% value at risk (VAR) and the expected shortfall (ES) of security Gamma (in millions)?

A disadvantage of the historic or back simulation model for quantifying market risk includes

An advantage of the historic or back simulation model for quantifying market risk includes

Consider the following discrete probability distributions of payoffs for 3 securities that are held in a DI's trading portfolio (payoff amounts shown are in $millions): What is the expected shortfall (ES) of securities Alpha and Beta at the 99 percent confidence level, respectively (in millions)?

If a trader in charge of an investment portfolio of an FI generates returns that are higher than other traders at the FI, she should be rewarded with higher compensation.

Assets and liabilities that are expected to require extensive time to liquidate are normally placed in the investment portfolio.

Which approach to measuring market risk, in effect, amounts to simulating or creating artificial trading days and FX rate changes?

Consider the following discrete probability distributions of payoffs for 3 securities that are held in a DI's trading portfolio (payoff amounts shown are in $millions): What are the expected returns for securities Alpha and Beta, respectively (in millions)?

Sumitomo Bank's risk manager has estimated that the VaRs of two of its major assets in its trading portfolio, foreign exchange and bonds, are -$150,000 and -$250,000, respectively. What is the total VaR of Sumitomo's trading portfolio if the correlations among assets are ignored?

The use of expected shortfall (ES) is most appropriate when