Exam 15: Market Risk

On December 31, 2001 Historic Bank had long positions of 200,000,000 Japanese Yen and 50,000,000 Swiss Francs. The closing exchange rates were ¥92/$ and Swf 1.89/$. What were the respective positions of the two currencies in dollars?

The use of expected shortfall (ES) to measure market risk of a portfolio assumes which of the following?

Price volatility of a bond can be estimated by multiplying the bond's modified duration by the adverse daily yield move.

The back simulation approach to estimating market risk exposure requires the use of daily prices or returns for some period of immediately recent history.

As compared to the BIS standardized framework model for measuring market risk, the internal models allowed by the large banks are subject to audit by the regulators.

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 price volatility if the maximum potential adverse move in yields is estimated at 20 basis points?

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 98 percent confidence (one-tailed) limit is used?

Daily value at risk (VaR) is defined as the dollar value of a position times price sensitivity.

How can market risk be defined in absolute terms?

The capital requirements of internally generated market risk exposure estimates can be met

Which of the following items is not considered to be an advantage of using back simulation over the Risk Metrics approach in developing market risk models?

The Volker Rule reduces the specialness of banks operating in the U.S. in maturity intermediation by effectively forcing DTIs to hold a matched maturity book.

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 correlation among assets is assumed to be 0.80?

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): Based on your answers to the previous three questions, which of the following is true?

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 correlation among assets is assumed to be 1.0?