Financial Risk and Regulation (FRR) Series
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Total Questions : 342
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To reduce the variability of net interest income, Gamma Bank can swap positions that make its duration gap equal to
Which of the following statements presents an advantage of using risk and control self-assessments (RCSA) in the operational risk framework?
I. RCSA provides very accurate scoring of risks and controls due to its subjective nature.
II. RCSA program provides insight into risks that exist in a firm, but that may or may not have occurred before.
III. RCSA program can produce biased but transparent operational risk reporting.
IV. RCSA program allows each department to take ownership of its own risks and controls.
Which one of the four following statements about Basis point values is correct?
Basis point value:
Which of the following are typical properties of a statistical distribution of potential losses that a bank might sustain over a period of time?
I. The range of possible losses above the average loss is much greater than those below the average loss.
II. The loss that is most likely to occur is below the average loss.
III. The loss that is most likely to occur is above the average loss.
Bank G has a 1-year VaR of USD 20 million at 99% confidence level while bank H has a 1-year VaR of USD 10 million at 95% confidence level. Which bank is in a more risky position as measured by VaR?
To improve the culture and awareness of the operational risk, Gamma Bank's CRO decides to promote three activities within her organization. Which one of the following four activities is NOT typically used to develop an operational risk framework?
Bank Muri has $4 million in cash and $5 million in loans coming due tomorrow with an expected default rate of 1%. The proceeds will be deposited overnight. The bank owes $ 9 million on a securities purchase that settles in two days and pays off $8 million in commercial paper in three days that is not expected to renew. On day 2, $1 million in loans is coming in with an expected default rate of 1% and on day 3, $2 million in loans is coming in with expected default rate of 2%. How much should the bank plan to raise in order to avoid liquidity problems?
The Treasury function of a bank typically manages all of the following components EXCEPT:
If a bank is long £500 million pounds, short £300 million in delta-equivalent pound options, and long £100 million in pound-denominated stocks, what is the amount of pound exposure that would be shown in the aggregated risk reports?
A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian dollars and sell Brazilian reals. Alpha bank does not hold Brazilian reals so it asks for a quote to buy Brazilian reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer, sells the reals, and receives AUD 1,010,000. To perform foreign exchange matched position trading, the banks should
DeltaFin wants to develop a control scoring method for its RCSA program. Which of the following statements regarding scoring methods are correct?
I. DeltaFin can develop a control scoring method that assesses both the design and the performance of the control.
II. DeltaFin can combine the design and performance scores for each control to produce an overall control effectiveness score.
III. DeltaFin can use the control performance scores to compute an overall risk severity score.
IV. DeltaFin can determine its own appropriate control scoring method.
Which of the following reports have been suggested by the FDIC that banks should produce in addition to the usual probabilistic analysis and stress tests in order to gauge liquidity issues?
I. Cash flow gaps
II. Funding availability
III. Critical assumptions used in credit projections
Which one of the four following statements regarding minimum loss data standards is not correct?
Which one of the following four statements regarding the current value of a transaction and its purposes is INCORRECT?
US-based BetaBank have accumulated Japanese yen, Japanese government bonds, options on Japanese yen, and positions in commodities that have a positive correlation with yen. Which one of the four following non-statistical risk measures could be used to evaluate the BetaBank's exposure to the Japanese economy?
When operating in a heavily traded currency, a commercial and retail bank's treasury is likely to focus on cover operations. Which one of the following four commercial and retails treasury's operations is known as a cover operation?
Which one of the following four statements correctly defines a non-exotic call option?
The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential failure of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed, the principal and the contractual interest payments, would be called ___.
Which of the following statements regarding bonds is correct?
I. Interest rates on bonds are typically stated on an annualized rate.
II. Bonds can pay floating coupons that are directly linked to various interest rate indices.
III. Convertible bonds have an element of prepayment risk.
IV. Callable bonds have an element of equity risk.
Of all the risk factors in loan pricing, which one of the following four choices is likely to be the least significant?
Changes to which one of the following four factors would typically not increase the cost of credit?
Typically, which one of the following four option risk measures will be used to determine the number of options to use to hedge the underlying position?
A risk manager has a long forward position of USD 1 million but the option portfolio decreases JPY 0.50 for every JPY 1 increase in his forward position. At first approximation, what is the overall result of the options positions?
An options trader is assessing the aggregate risk of her currency options exposures. As an options buyer, she can potentially ___ lose more than the premium originally paid. As an option seller, however, she has a ___ risk on the contract and always receives a premium.
Which one of the following four alternatives lists the three most widely traded currencies on the global foreign exchange market, as of April 2007, in the decreasing order of market share? EUR is the abbreviation of the European euro, JPY is for the Japanese yen, and USD is for the United States dollar, respectively.
Which one of the following four statements regarding counterparty credit risk is INCORRECT?
Which one of the following four global markets for financial assets or instruments is widely believed to be the most liquid?
All of the following performance statistics typically benefit country's creditworthiness EXCEPT:
Which one of the following four mathematical option pricing models is used most widely for pricing European options?
The pricing of credit default swaps is a function of all of the following EXCEPT:
In the United States, foreign exchange derivative transactions typically occur between
In the United States, Which one of the following four options represents the largest component of securitized debt?
As Japan ___ its budget deficits and ___ its dependence on debt, the Japanese currency, JPY, would ___ in value against other currencies.
Gamma Bank estimates its monthly portfolio volatility at 5%.The portfolio's annual volatility is closest to which of the following?
Over a long period of time DeltaBank has amassed a large equity option position. Which of the following risks should be considered in this transaction?
I. Counterparty risk on long OTC option positions
II. Counterparty risk on short OTC option positions
III. Counterparty risk on long exchange-traded option positions
IV. Counterparty risk on short exchange-traded option positions
Which of the following statements regarding collateralized debt obligations (CDOs) is correct?
I. CDOs typically have loans or bonds as underlying collateral.
II. CDOs generally less risky than CMOs.
III. There is a correlation among defaults in the CDO collateral which should be considered in valuation of these complex instruments.
Which one of the following statements is an advantage of using implied volatility as an input when calculating VaR?
Which of the following measure describes the symmetry of a statistical distribution?
To estimate the forward price of oil, a commodity trader would most likely use the following pricing relationship:
Which one of the four following statements about back testing the VaR models is correct?
Back testing requires
Samuel Teng owns a portfolio of bonds and is trying to compute the convexity of his portfolio. Which of the following choices equals the convexity of Samuel's portfolio?
Which of the following statements is a key difference between customer loans and interbank loans?
James Johnson bought a coupon bond yielding 4.7% for $1,000. Assuming that the price drops to $976 when yield increases to 4.71%, what is the PVBP of the bond.
From a risk point of view, which of the following factors will generally lead to the fluctuation of equity values with industry P/E levels and a company's individual earnings?
I. Sales
II. Cost management
III. Commercial success of the company
IV. Market sentiment
A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5% semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk manager of the bank is concerned about the sensitivity to interest rates. Which of the following statements are true?
Which one of the following statements regarding collateralized mortgage obligations (CMO) is incorrect?
Which one of the following four statements describes the advantage of using delta-gamma method of mapping options positions over delta-normal method?
Delta-gamma method
TESTED 05 May 2024
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