Question 1

Which of the following statements is true?

Accepted Answer

A)  The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying a 4 per cent charge against the gross position in the share. 
B)  The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying an 8 per cent charge against the gross position in the share. 
C)  The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying a 4 per cent charge against the net position in the share. 
D)  The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying an 8 per cent charge against the net position in the share. 
A)  The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying a 4 per cent charge against the gross position in the share. 
B)  The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying an 8 per cent charge against the gross position in the share. 
C)  The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying a 4 per cent charge against the net position in the share. 
D)  The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying an 8 per cent charge against the net position in the share.

Question 2

How can basis risk arise in an FI's operations?

Accepted Answer

A)  Basis risk arises because loan rates and deposit rates are inversely related in their movements over time. 
B)  Basis risk arises because loan rates and deposit rates are perfectly correlated in their movements over time. 
C)  Basis risk arises because loan rates and deposit rates are not correlated in their movements over time. 
D)  Basis risk arises because loan rates and deposit rates are not perfectly related in their movements over time. 
A)  Basis risk arises because loan rates and deposit rates are inversely related in their movements over time. 
B)  Basis risk arises because loan rates and deposit rates are perfectly correlated in their movements over time. 
C)  Basis risk arises because loan rates and deposit rates are not correlated in their movements over time. 
D)  Basis risk arises because loan rates and deposit rates are not perfectly related in their movements over time.

Question 3

Which of the following statements is true?

Accepted Answer

A)  Daily price volatility is calculated as the price sensitivity to a small change in yield multiplied by the adverse daily yield move. 
B)  Daily price volatility is calculated as the negative modified duration of a security multiplied by the adverse daily yield move. 
C)  The daily price volatility of a security influences how much an FI might lose in case of adverse market movements. 
D)  All of the listed options are correct. 
A)  Daily price volatility is calculated as the price sensitivity to a small change in yield multiplied by the adverse daily yield move. 
B)  Daily price volatility is calculated as the negative modified duration of a security multiplied by the adverse daily yield move. 
C)  The daily price volatility of a security influences how much an FI might lose in case of adverse market movements. 
D)  All of the listed options are correct.

Question 4

A major advantage is that RiskMetrics directly provides a worst-case scenario number, while this is not the case for back simulation.

Accepted Answer

A) True 
 B)False

Question 5

One benefit of the historic or back simulation approach is that it does not need calculation of standard deviations and correlations (or assume normal distributions for asset returns) to calculate the portfolio risk figures.

Accepted Answer

A) True 
 B)False

Question 6

Assume an FI holds a foreign exchange position of EUR 200 000 and further assume that the dollar per unit of EUR rate is $1.053/EUR. What is the dollar value of the position (round to two decimals)?

Accepted Answer

A)  EUR 200 000 $\times$ 1.053 = $210 600.00 
B)  EUR 200 000 $\times$ 1.053 = EUR 210 600.00 
C)  EUR 200 000 / 1.053 = $189 933.52 
D)  EUR 200 000 / 1.053 = EUR 189 933.52 
A)  EUR 200 000 $\times$ 1.053 = $210 600.00 
B)  EUR 200 000 $\times$ 1.053 = EUR 210 600.00 
C)  EUR 200 000 / 1.053 = $189 933.52 
D)  EUR 200 000 / 1.053 = EUR 189 933.52

Question 7

Which of the following statements is true?

Accepted Answer

A)  The All Ordinaries index is Australia's premier market indicator, which represents the 100 largest companies listed on the Australian Stock Exchange. 
B)  The All Ordinaries index is Australia's premier market indicator, which represents the 300 largest companies listed on the Australian Stock Exchange. 
C)  The All Ordinaries index is Australia's premier market indicator, which represents the 500 largest companies listed on the Australian Stock Exchange. 
D)  The All Ordinaries index is Australia's premier market indicator, which represents all companies listed on the Australian Stock Exchange. 
A)  The All Ordinaries index is Australia's premier market indicator, which represents the 100 largest companies listed on the Australian Stock Exchange. 
B)  The All Ordinaries index is Australia's premier market indicator, which represents the 300 largest companies listed on the Australian Stock Exchange. 
C)  The All Ordinaries index is Australia's premier market indicator, which represents the 500 largest companies listed on the Australian Stock Exchange. 
D)  The All Ordinaries index is Australia's premier market indicator, which represents all companies listed on the Australian Stock Exchange.

Question 8

Specific risk charge is a charge reflecting the risk of the decline in the liquidity or credit risk quality of the trading portfolio.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is true?

Accepted Answer

A)  The major models used by banks in calculating market risk exposures are RiskMetrics, Monaco simulation and Historic (back) calculation. 
B)  The major models used by banks in calculating market risk exposures are CreditMetrics, Monte Carlo simulation and Historic (back) calculation. 
C)  The major models used by banks in calculating market risk exposures are RiskMetrics, Monte Carlo simulation and Historic (back) calculation. 
D)  The major models used by banks in calculating market risk exposures are CreditMetrics, Monte Carlo simulation and Forward calculation. 
A)  The major models used by banks in calculating market risk exposures are RiskMetrics, Monaco simulation and Historic (back) calculation. 
B)  The major models used by banks in calculating market risk exposures are CreditMetrics, Monte Carlo simulation and Historic (back) calculation. 
C)  The major models used by banks in calculating market risk exposures are RiskMetrics, Monte Carlo simulation and Historic (back) calculation. 
D)  The major models used by banks in calculating market risk exposures are CreditMetrics, Monte Carlo simulation and Forward calculation.

Question 10

Consider a VAR of $100 000 for a 95 per cent confidence level. A problem with this information is that while we know that we will lose more than the VAR amount on 5 days out of every 100, we do not know the maximum amount we can lose.

Accepted Answer

A) True 
 B)False

Question 11

Assume the market value of a position is $100 000 and that its modified duration is 3.30 years. Further assume that the potential adverse move in yield is 16.5 basis points. What are the daily earnings at risk for this position (round to two decimals)?

Accepted Answer

A)  $54.45 
B)  $544.50 
C)  $54 450.00 
D)  Not enough information to solve the question. 
A)  $54.45 
B)  $544.50 
C)  $54 450.00 
D)  Not enough information to solve the question.

Question 12

Suppose an FI holds a $2 000 000 trading portfolio with an average beta of 1.0. Over the last year, the daily return on the stock market index was 3 per cent. How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

Accepted Answer

A)  $2 000 000 $\times$ 0.03 = $60 000 
B)  $2 000 000 $\times$ 1.0 $\times$ 0.03 = $60 000 
C)  $2 000 000 $\times$ 1.65 $\times$ 0.03 = $99 000 
D)  $2 000 000 $\times$ 2.33 $\times$ 0.03 = $139 800 
A)  $2 000 000 $\times$ 0.03 = $60 000 
B)  $2 000 000 $\times$ 1.0 $\times$ 0.03 = $60 000 
C)  $2 000 000 $\times$ 1.65 $\times$ 0.03 = $99 000 
D)  $2 000 000 $\times$ 2.33 $\times$ 0.03 = $139 800

Question 13

Which of the following statements is true?

Accepted Answer

A)  Beta is a measure of systematic risk reflecting the co-movement of the returns on a specific share with returns on shares in the same industry 
B)  Beta is a measure of unsystematic risk reflecting the co-movement of the returns on a specific share with returns on shares in the same industry. 
C)  Beta is a measure of unsystematic risk reflecting the co-movement of the returns on a specific share with returns on the market portfolio. 
D)  Beta is a measure of systematic risk reflecting the co-movement of the returns on a specific share with returns on the market portfolio. 
A)  Beta is a measure of systematic risk reflecting the co-movement of the returns on a specific share with returns on shares in the same industry 
B)  Beta is a measure of unsystematic risk reflecting the co-movement of the returns on a specific share with returns on shares in the same industry. 
C)  Beta is a measure of unsystematic risk reflecting the co-movement of the returns on a specific share with returns on the market portfolio. 
D)  Beta is a measure of systematic risk reflecting the co-movement of the returns on a specific share with returns on the market portfolio.

Question 14

Vertical offsets are calculated using the sum of the general market risk charges from long and short positions in each time zone.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is true?

Accepted Answer

A)  Under BIS, the capital charge is calculated as DEAR multiplied by the square root of 10 multiplied by 3. 
B)  The idea of a minimum multiplication factor of 3 is to create a scheme that is 'incentive compatible'. 
C)  Regulators can punish FIs that underestimate their capital charges by raising the multiplication factor to as high as 5. 
D)  Under BIS, the capital charge is calculated as DEAR multiplied by the square root of 10 multiplied by 3 and the idea of a minimum multiplication factor of 3 is to create a scheme that is 'incentive compatible'. 
A)  Under BIS, the capital charge is calculated as DEAR multiplied by the square root of 10 multiplied by 3. 
B)  The idea of a minimum multiplication factor of 3 is to create a scheme that is 'incentive compatible'. 
C)  Regulators can punish FIs that underestimate their capital charges by raising the multiplication factor to as high as 5. 
D)  Under BIS, the capital charge is calculated as DEAR multiplied by the square root of 10 multiplied by 3 and the idea of a minimum multiplication factor of 3 is to create a scheme that is 'incentive compatible'.

Question 16

Assume that the dollar market value of a position is $100 000 and the price volatility is 1.50 per cent. What are the daily earnings at risk for this position (round to two decimals)?

Accepted Answer

A)  $150.00 
B)  $1500.00 
C)  $15 000.00 
D)  Not enough information to solve the question. 
A)  $150.00 
B)  $1500.00 
C)  $15 000.00 
D)  Not enough information to solve the question.

Question 17

Which of the following statements is true?

Accepted Answer

A)  In CAPM, it is assumed that systematic and unsystematic risk are positively correlated. 
B)  In CAPM, it is assumed that systematic and unsystematic risk are negatively correlated. 
C)  In CAPM, it is assumed that systematic and unsystematic risk are independent of each other. 
D)  None of the listed options are correct. 
A)  In CAPM, it is assumed that systematic and unsystematic risk are positively correlated. 
B)  In CAPM, it is assumed that systematic and unsystematic risk are negatively correlated. 
C)  In CAPM, it is assumed that systematic and unsystematic risk are independent of each other. 
D)  None of the listed options are correct.

Question 18

Which of the following statements is true?

Accepted Answer

A)  Daily earnings at risk are defined as the dollar market value of a position plus the price sensitivity of the position plus the potential adverse move in yield. 
B)  Daily earnings at risk are defined as the dollar market value of a position multiplied by the price sensitivity of the position multiplied by the potential adverse move in yield. 
C)  Daily earnings at risk are defined as (the dollar market value of a position plus the price sensitivity of the position) multiplied by the potential adverse move in yield. 
D)  Daily earnings at risk are defined as the dollar market value of a position divided by (the price sensitivity of the position plus the potential adverse move in yield). 
A)  Daily earnings at risk are defined as the dollar market value of a position plus the price sensitivity of the position plus the potential adverse move in yield. 
B)  Daily earnings at risk are defined as the dollar market value of a position multiplied by the price sensitivity of the position multiplied by the potential adverse move in yield. 
C)  Daily earnings at risk are defined as (the dollar market value of a position plus the price sensitivity of the position) multiplied by the potential adverse move in yield. 
D)  Daily earnings at risk are defined as the dollar market value of a position divided by (the price sensitivity of the position plus the potential adverse move in yield).

Question 19

Assume the dollar market value of an FI's position is $200 000 with a modified duration of 4 years. The potential adverse move in the yield is 16.5 basis points. What is the VAR of the position if the FI is required to hold the position for 6 days (round to two decimals)?

Accepted Answer

A)  $1 320.00 
B)  $3 233.33 
C)  $330.00 
D)  $200 000.00 
A)  $1 320.00 
B)  $3 233.33 
C)  $330.00 
D)  $200 000.00

Question 20

Which of the following statements is true?

Accepted Answer

A)  Systematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's vega and the volatility of the market portfolio. 
B)  Unsystematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's vega and the volatility of the market portfolio. 
C)  Systematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's beta and the volatility of the market portfolio. 
D)  Unsystematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's beta and the volatility of the market portfolio. 
A)  Systematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's vega and the volatility of the market portfolio. 
B)  Unsystematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's vega and the volatility of the market portfolio. 
C)  Systematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's beta and the volatility of the market portfolio. 
D)  Unsystematic risk reflects the co-movement of a stock with the market portfolio, reflected by the stock's beta and the volatility of the market portfolio.

Which of the following statements is true?

How can basis risk arise in an FI's operations?

Which of the following statements is true?

A major advantage is that RiskMetrics directly provides a worst-case scenario number, while this is not the case for back simulation.

One benefit of the historic or back simulation approach is that it does not need calculation of standard deviations and correlations (or assume normal distributions for asset returns) to calculate the portfolio risk figures.

Assume an FI holds a foreign exchange position of EUR 200 000 and further assume that the dollar per unit of EUR rate is $1.053/EUR. What is the dollar value of the position (round to two decimals)?

Which of the following statements is true?

Specific risk charge is a charge reflecting the risk of the decline in the liquidity or credit risk quality of the trading portfolio.

Which of the following statements is true?

Consider a VAR of $100 000 for a 95 per cent confidence level. A problem with this information is that while we know that we will lose more than the VAR amount on 5 days out of every 100, we do not know the maximum amount we can lose.

Assume the market value of a position is $100 000 and that its modified duration is 3.30 years. Further assume that the potential adverse move in yield is 16.5 basis points. What are the daily earnings at risk for this position (round to two decimals)?

Suppose an FI holds a $2 000 000 trading portfolio with an average beta of 1.0. Over the last year, the daily return on the stock market index was 3 per cent. How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

Which of the following statements is true?

Vertical offsets are calculated using the sum of the general market risk charges from long and short positions in each time zone.

Which of the following statements is true?

Assume that the dollar market value of a position is $100 000 and the price volatility is 1.50 per cent. What are the daily earnings at risk for this position (round to two decimals)?

Which of the following statements is true?

Which of the following statements is true?

Assume the dollar market value of an FI's position is $200 000 with a modified duration of 4 years. The potential adverse move in the yield is 16.5 basis points. What is the VAR of the position if the FI is required to hold the position for 6 days (round to two decimals)?

Which of the following statements is true?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters

Exam 9: Market Risk

Which of the following statements is true?

How can basis risk arise in an FI's operations?

Which of the following statements is true?

A major advantage is that RiskMetrics directly provides a worst-case scenario number, while this is not the case for back simulation.

One benefit of the historic or back simulation approach is that it does not need calculation of standard deviations and correlations (or assume normal distributions for asset returns) to calculate the portfolio risk figures.

Assume an FI holds a foreign exchange position of EUR 200 000 and further assume that the dollar per unit of EUR rate is $1.053/EUR. What is the dollar value of the position (round to two decimals)?

Which of the following statements is true?

Specific risk charge is a charge reflecting the risk of the decline in the liquidity or credit risk quality of the trading portfolio.

Which of the following statements is true?

Consider a VAR of $100 000 for a 95 per cent confidence level. A problem with this information is that while we know that we will lose more than the VAR amount on 5 days out of every 100, we do not know the maximum amount we can lose.

Assume the market value of a position is $100 000 and that its modified duration is 3.30 years. Further assume that the potential adverse move in yield is 16.5 basis points. What are the daily earnings at risk for this position (round to two decimals)?

Suppose an FI holds a $2 000 000 trading portfolio with an average beta of 1.0. Over the last year, the daily return on the stock market index was 3 per cent. How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

Which of the following statements is true?

Vertical offsets are calculated using the sum of the general market risk charges from long and short positions in each time zone.

Which of the following statements is true?

Assume that the dollar market value of a position is $100 000 and the price volatility is 1.50 per cent. What are the daily earnings at risk for this position (round to two decimals)?

Which of the following statements is true?

Which of the following statements is true?

Assume the dollar market value of an FI's position is $200 000 with a modified duration of 4 years. The potential adverse move in the yield is 16.5 basis points. What is the VAR of the position if the FI is required to hold the position for 6 days (round to two decimals)?

Which of the following statements is true?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters