Question 1

Which of the following statements is true?

Accepted Answer

A) There are no major flaws associated with VAR models like RiskMetrics. 
B) One problem associated with VAR models such as RiskMetrics is the assumption of a normal distribution, that is, a skew of 1. 
C) One problem associated with VAR models such as RiskMetrics is that these models ignore the risk in the payments of accrued interest on an FI's debt securities. 
D) None of the listed options are correct. 
A) There are no major flaws associated with VAR models like RiskMetrics. 
B) One problem associated with VAR models such as RiskMetrics is the assumption of a normal distribution, that is, a skew of 1. 
C) One problem associated with VAR models such as RiskMetrics is that these models ignore the risk in the payments of accrued interest on an FI's debt securities. 
D) None of the listed options are correct.

Question 2

Which of the following statements best describes the relationship between total risk, systematic risk and unsystematic risk?

Accepted Answer

A) Total risk is the product of systematic and unsystematic risk. 
B) Total risk is the sum of systematic and unsystematic risk. 
C) Total risk is the quotient of systematic and unsystematic risk. 
D) Total risk is the difference between systematic and unsystematic risk. 
A) Total risk is the product of systematic and unsystematic risk. 
B) Total risk is the sum of systematic and unsystematic risk. 
C) Total risk is the quotient of systematic and unsystematic risk. 
D) Total risk is the difference between systematic and unsystematic risk.

Question 3

Assume that the dollar market value of a position is $100 000 and the price volatility is 1.50%.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 4

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 * 1.053 = $210,600.00 
B) EUR 200,000 * 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 * 1.053 = $210,600.00 
B) EUR 200,000 * 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 5

In sequential order, the steps involved in back simulation are as follows: measure exposures, measure sensitivity, measure risk, measure risk again, rank days by risk from worst to best, VAR.

Accepted Answer

A) True 
 B)False

Question 6

Consider the following hypothetical foreign exchange portfolio.What are the daily earnings at risk for the portfolio?

Accepted Answer

A) $200 / 0.45 = $444.44 
B) $200 * 0.45 = $90.00 
C) ($200 / 0.45) / 100 = $4.44 
D) ($200 * 0.45) / 100 = $0.90 
A) $200 / 0.45 = $444.44 
B) $200 * 0.45 = $90.00 
C) ($200 / 0.45) / 100 = $4.44 
D) ($200 * 0.45) / 100 = $0.90

Question 7

VaR gives only partial information about the extent of possible losses, particularly when probability distributions are non-normal.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is true?

Accepted Answer

A) The relative illiquidity of a market reduces an FI's losses. 
B) The relative illiquidity of a market exposes an FI to magnified losses. 
C) The relative illiquidity of a market does not influence an FI's loss size. 
D) None of the listed options are correct. 
A) The relative illiquidity of a market reduces an FI's losses. 
B) The relative illiquidity of a market exposes an FI to magnified losses. 
C) The relative illiquidity of a market does not influence an FI's loss size. 
D) None of the listed options are correct.

Question 9

Which of the following statements is true?

Accepted Answer

A) Unsystematic risk is specific to a particular firm. 
B) Unsystematic risk is specific to a particular industry. 
C) Unsystematic risk is specific to a particular geographical area. 
D) Unsystematic risk relates to the whole market. 
A) Unsystematic risk is specific to a particular firm. 
B) Unsystematic risk is specific to a particular industry. 
C) Unsystematic risk is specific to a particular geographical area. 
D) Unsystematic risk relates to the whole market.

Question 10

The N-day market value at risk (VAR) equals daily earning at risk multiplied by the square root of N if we assume that yield shocks are:

Accepted Answer

A) dependent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N number of days 
B) independent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N number of days 
C) dependent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N minus one number of days 
D) independent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N minus one number of days 
A) dependent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N number of days 
B) independent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N number of days 
C) dependent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N minus one number of days 
D) independent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N minus one number of days

Question 11

Describe the process of the fuller risk factor approach.

Accepted Answer

The fuller risk factor approach requires

Question 12

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% 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% 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% 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% 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% 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% 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% 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% charge against the net position in the share.

Question 13

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%.How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

Accepted Answer

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

Question 14

Which of the following statements is true?

Accepted Answer

A) Since regulators are concerned with the social cost of a failure, regulatory models will normally tend to be more conservative than private sector models that are concerned only with the private costs of failure. 
B) Since regulators are concerned with the social cost of a failure, regulatory models will normally tend to be less conservative than private sector models that are concerned only with the private costs of failure. 
C) Regulators and private firms are both concerned with the social cost of a failure and thus their models do not differ. 
D) None of the listed options are correct. 
A) Since regulators are concerned with the social cost of a failure, regulatory models will normally tend to be more conservative than private sector models that are concerned only with the private costs of failure. 
B) Since regulators are concerned with the social cost of a failure, regulatory models will normally tend to be less conservative than private sector models that are concerned only with the private costs of failure. 
C) Regulators and private firms are both concerned with the social cost of a failure and thus their models do not differ. 
D) None of the listed options are correct.

Question 15

Sovereign risk is defined as the risk related to the uncertainty of an FI's earnings on its trading portfolio caused by changes in market conditions.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Market risk is defined as the risk related to the uncertainty of an FI's earnings on its trading portfolio caused by changes in market conditions.

Accepted Answer

A) True 
 B)False

Question 18

Why is market risk measurement important?

Accepted Answer

Market risk is related to the uncertaint

Question 19

VaR gives full information about the extent of possible losses, particularly when probability distributions are non-normal.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is a measure of systematic risk?

Accepted Answer

A) alpha 
B) beta 
C) gamma 
D) sigma 
A) alpha 
B) beta 
C) gamma 
D) sigma

Which of the following statements is true?

Which of the following statements best describes the relationship between total risk, systematic risk and unsystematic risk?

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

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)?

In sequential order, the steps involved in back simulation are as follows: measure exposures, measure sensitivity, measure risk, measure risk again, rank days by risk from worst to best, VAR.

Consider the following hypothetical foreign exchange portfolio.What are the daily earnings at risk for the portfolio?

VaR gives only partial information about the extent of possible losses, particularly when probability distributions are non-normal.

Which of the following statements is true?

Which of the following statements is true?

The N-day market value at risk (VAR) equals daily earning at risk multiplied by the square root of N if we assume that yield shocks are:

Describe the process of the fuller risk factor approach.

Which of the following statements is true?

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%.How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

Which of the following statements is true?

Sovereign risk is defined as the risk related to the uncertainty of an FI's earnings on its trading portfolio caused by changes in market conditions.

Which of the following statements is true?

Market risk is defined as the risk related to the uncertainty of an FI's earnings on its trading portfolio caused by changes in market conditions.

Why is market risk measurement important?

VaR gives full information about the extent of possible losses, particularly when probability distributions are non-normal.

Which of the following is a measure of systematic risk?

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks 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

Managing Interest Rate Risk Using Securitisation

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 Risks

Capital Management and Adequacy

Filters

Exam 9: Market Risk

Which of the following statements is true?

Which of the following statements best describes the relationship between total risk, systematic risk and unsystematic risk?

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

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)?

In sequential order, the steps involved in back simulation are as follows: measure exposures, measure sensitivity, measure risk, measure risk again, rank days by risk from worst to best, VAR.

Consider the following hypothetical foreign exchange portfolio.What are the daily earnings at risk for the portfolio?

VaR gives only partial information about the extent of possible losses, particularly when probability distributions are non-normal.

Which of the following statements is true?

Which of the following statements is true?

The N-day market value at risk (VAR) equals daily earning at risk multiplied by the square root of N if we assume that yield shocks are:

Describe the process of the fuller risk factor approach.

Which of the following statements is true?

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%.How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

Which of the following statements is true?

Sovereign risk is defined as the risk related to the uncertainty of an FI's earnings on its trading portfolio caused by changes in market conditions.

Which of the following statements is true?

Market risk is defined as the risk related to the uncertainty of an FI's earnings on its trading portfolio caused by changes in market conditions.

Why is market risk measurement important?

VaR gives full information about the extent of possible losses, particularly when probability distributions are non-normal.

Which of the following is a measure of systematic risk?

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks 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

Managing Interest Rate Risk Using Securitisation

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 Risks

Capital Management and Adequacy

Filters