Question 1

Which of the following is true

Accepted Answer

A)  FVA is always positive 
B)  FVA is always negative 
C)  FVA for a transaction is initially zero 
D)  None of the above 
A)  FVA is always positive 
B)  FVA is always negative 
C)  FVA for a transaction is initially zero 
D)  None of the above D

Question 2

DVA stands for

Accepted Answer

A)  Debt valuation adjustment 
B)  Debt valuation agreement 
C)  Debt variation adjustment 
D)  Debit valuation agreement 
A)  Debt valuation adjustment 
B)  Debt valuation agreement 
C)  Debt variation adjustment 
D)  Debit valuation agreement A

Question 3

Which of the following involves most credit risk

Accepted Answer

A)  Exchange trading 
B)  OTC trading with a central clearing party being used 
C)  OTC trading with bilateral clearing and collateral being posted 
D)  OTC trading with bilateral clearing and no collateral being posted 
A)  Exchange trading 
B)  OTC trading with a central clearing party being used 
C)  OTC trading with bilateral clearing and collateral being posted 
D)  OTC trading with bilateral clearing and no collateral being posted D

Question 4

Which of the following is NOT a valuation adjustment

Accepted Answer

A)  CVA 
B)  MVA 
C)  ZVA 
D)  KVA 
A)  CVA 
B)  MVA 
C)  ZVA 
D)  KVA

Question 5

Which of the following is true

Accepted Answer

A)  CVA and DVA can be calculated deal by deal 
B)  CVA and DVA must both be calculated for the whole portfolio a bank has with a counterparty 
C)  CVA can be calculated deal by deal but DVA must be calculated for a portfolio 
D)  DVA can be calculated deal by deal but CVA must be calculated for a portfolio 
A)  CVA and DVA can be calculated deal by deal 
B)  CVA and DVA must both be calculated for the whole portfolio a bank has with a counterparty 
C)  CVA can be calculated deal by deal but DVA must be calculated for a portfolio 
D)  DVA can be calculated deal by deal but CVA must be calculated for a portfolio

Question 6

Which of the following is true

Accepted Answer

A)  OIS rates are less than the corresponding LIBOR/swap rates 
B)  OIS rates are greater than corresponding LIBOR/swap rates 
C)  OIS rates are sometimes greater and sometimes less than LIBOR/swap rates 
D)  OIS rates are equivalent to one-day LIBOR rates 
A)  OIS rates are less than the corresponding LIBOR/swap rates 
B)  OIS rates are greater than corresponding LIBOR/swap rates 
C)  OIS rates are sometimes greater and sometimes less than LIBOR/swap rates 
D)  OIS rates are equivalent to one-day LIBOR rates

Question 7

Which of the following is approximately true

Accepted Answer

A)  FVA can be calculated from the initial value of a derivative 
B)  FVA can be calculated on a transaction-by-transaction basis without considering the whole portfolio of derivatives a dealer has with a counterparty 
C)  FVA should theoretically depend on a dealer's funding cost 
D)  None of the above 
A)  FVA can be calculated from the initial value of a derivative 
B)  FVA can be calculated on a transaction-by-transaction basis without considering the whole portfolio of derivatives a dealer has with a counterparty 
C)  FVA should theoretically depend on a dealer's funding cost 
D)  None of the above

Question 8

CVA stands for

Accepted Answer

A)  Collateral valuation adjustment 
B)  Credit valuation adjustment 
C)  Credit valuation agreement 
D)  Collateral valuation agreement 
A)  Collateral valuation adjustment 
B)  Credit valuation adjustment 
C)  Credit valuation agreement 
D)  Collateral valuation agreement

Question 9

FVA is concerned with

Accepted Answer

A)  The cost of funding initial margin 
B)  The cost of funding variation margin 
C)  The cost of regulatory capital 
D)  None of the above 
A)  The cost of funding initial margin 
B)  The cost of funding variation margin 
C)  The cost of regulatory capital 
D)  None of the above

Question 10

A bank has three uncollateralized transactions with a counterparty worth +$10 million,−$20 million and +$25 million.A netting agreement is in place.What is the maximum loss if the counterparty defaults today.

Accepted Answer

A)  $15 million 
B)  $35 million 
C)  $20 million 
D)  Zero 
A)  $15 million 
B)  $35 million 
C)  $20 million 
D)  Zero

Question 11

Financial economics argues that

Accepted Answer

A)  All investments by a company should earn the company's weighted average cost of capital 
B)  The required expected return on an investment is the average cost of debt 
C)  The required expected return on an investment increases with the riskiness of the investment 
D)  The required expected return on an investment decreases with the riskiness of the investment 
A)  All investments by a company should earn the company's weighted average cost of capital 
B)  The required expected return on an investment is the average cost of debt 
C)  The required expected return on an investment increases with the riskiness of the investment 
D)  The required expected return on an investment decreases with the riskiness of the investment

Question 12

DVA for a bank is most dependent on

Accepted Answer

A)  The default probabilities of the bank in future time periods 
B)  The default probabilities of the bank's counterparties in future times periods 
C)  Both A and B 
D)  Neither A nor B 
A)  The default probabilities of the bank in future time periods 
B)  The default probabilities of the bank's counterparties in future times periods 
C)  Both A and B 
D)  Neither A nor B

Question 13

When a bank's borrowing rate goes up,which of the following is true

Accepted Answer

A)  DVA increases so that the bank's profit goes down 
B)  DVA increases so that the bank's profit goes up 
C)  DVA declines so that the bank's profit goes down 
D)  DVA declines so that the bank's profit goes up 
A)  DVA increases so that the bank's profit goes down 
B)  DVA increases so that the bank's profit goes up 
C)  DVA declines so that the bank's profit goes down 
D)  DVA declines so that the bank's profit goes up

Question 14

MVA is concerned with

Accepted Answer

A)  The cost of funding initial margin 
B)  The cost of funding variation margin 
C)  The cost of regulatory capital 
D)  None of the above 
A)  The cost of funding initial margin 
B)  The cost of funding variation margin 
C)  The cost of regulatory capital 
D)  None of the above

Question 15

It is assumed that a company can default after one year or after two years.The probability of default at each time is 1.5%.The present value of the expected loss to a bank on a derivatives portfolio if the company defaults after one year is estimated to be $1 million.The present value of the expected loss if it defaults after two years is estimated to be $2 million.Which of the following is the bank's CVA ?

Accepted Answer

A)  $3,000,000 
B)  $300,000 
C)  $45,000 
D)  $150,000 
A)  $3,000,000 
B)  $300,000 
C)  $45,000 
D)  $150,000

Question 16

Prior to the credit crisis that started in 2007 which of the following was used by derivatives traders for the discount rate when derivatives were valued

Accepted Answer

A)  The Treasury rate 
B)  The LIBOR rate 
C)  The repo rate 
D)  The overnight indexed swap rate 
A)  The Treasury rate 
B)  The LIBOR rate 
C)  The repo rate 
D)  The overnight indexed swap rate

Question 17

Since the credit crisis that started in 2007 which of the following have derivatives traders used as the risk-free discount rate for collateralized transactions

Accepted Answer

A)  The Treasury rate 
B)  The LIBOR rate 
C)  The repo rate 
D)  The overnight indexed swap rate 
A)  The Treasury rate 
B)  The LIBOR rate 
C)  The repo rate 
D)  The overnight indexed swap rate

Question 18

CVA is concerned with

Accepted Answer

A)  The cost of funding initial margin 
B)  The cost of funding variation margin 
C)  The cost of regulatory capital 
D)  None of the above 
A)  The cost of funding initial margin 
B)  The cost of funding variation margin 
C)  The cost of regulatory capital 
D)  None of the above

Question 19

KVA is concerned with

Accepted Answer

A)  The cost of funding initial margin 
B)  The cost of funding variation margin 
C)  The cost of regulatory capital 
D)  None of the above 
A)  The cost of funding initial margin 
B)  The cost of funding variation margin 
C)  The cost of regulatory capital 
D)  None of the above

Question 20

Financial economics argues that as the percentage of equity in the capital structure increases

Accepted Answer

A)  The required return on both equity and debt decrease 
B)  The required return on equity decreases and the required return on debt increases 
C)  The required return on equity increases and the required return on debt decreases 
D)  The required return on both equity and debt increase 
A)  The required return on both equity and debt decrease 
B)  The required return on equity decreases and the required return on debt increases 
C)  The required return on equity increases and the required return on debt decreases 
D)  The required return on both equity and debt increase

Exam 9: Xvas

Which of the following is true

DVA stands for

Which of the following involves most credit risk

Which of the following is NOT a valuation adjustment

Which of the following is true

Which of the following is true

Which of the following is approximately true

CVA stands for

FVA is concerned with

A bank has three uncollateralized transactions with a counterparty worth +$10 million,−$20 million and +$25 million.A netting agreement is in place.What is the maximum loss if the counterparty defaults today.

Financial economics argues that

DVA for a bank is most dependent on

When a bank's borrowing rate goes up,which of the following is true

MVA is concerned with

Prior to the credit crisis that started in 2007 which of the following was used by derivatives traders for the discount rate when derivatives were valued

Since the credit crisis that started in 2007 which of the following have derivatives traders used as the risk-free discount rate for collateralized transactions

CVA is concerned with

KVA is concerned with

Financial economics argues that as the percentage of equity in the capital structure increases

Introduction

Futures Markets and Central Counterparties

Hedging Strategies Using Futures

Interest Rates

Determination of Forward and Futures Prices

Interest Rate Futures

Swaps

Securitization and the Credit Crisis of 2007

Mechanics of Options Markets

Properties of Stock Options

Trading Strategies Involving Options

Binomial Trees

Wiener Processes and Itos Lemma

The Black-Scholes-Merton Model

Employee Stock Options

Options on Stock Indices and Currencies

Futures Options and Blacks Model

The Greek Letters

Volatility Smiles

Basic Numerical Procedures

Value at Risk and Expected Shortfall

Estimating Volatilities and Correlations

Credit Risk

Credit Derivatives

Exotic Options

Filters