8010 Practice Exam Questions and Answers

Under the CreditPortfolio View model of credit risk, the conditional probability of default will be:

A bank expects the error rate in transaction data entry for a particular business process to be 0.005%. What is the range of expected errors in a day within +/- 2 standard deviations if there are 2,000,000 such transactions each day?

Which of the following is NOT true in respect of bilateral close out netting:

Credit exposure for derivatives is measured using

If E denotes the expected value of a loan portfolio at the end on one year and U the value of the portfolio in the worst case scenario at the 99% confidence level, which of the following expressions correctly describes economic capital requiredin respect of credit risk?

The capital adequacy ratio applied to risk weighted assets for the calculation of capital requirements for credit risk per Basel II is:

Which of the following statements is true

I. If no loss data is available, good quality scenarios can be used to model operational risk

II. Scenario data can be mixed with observed loss data for modeling severity and frequency estimates

III. Severity estimates should not be created by fitting models to scenario generated loss data points alone

IV. Scenario assessments should only be used as modifiers to ILD or ELD severity models.

According to the implied capital model, operational risk capital is estimated as:

Financial institutions need to take volatility clustering into account:

I. To avoid taking on an undesirable level of risk

II. To know the right level of capital they need to hold

III. To meet regulatory requirements

IV. To account for mean reversion in returns

A bank prices retail credit loans based on median default rates. Over the long run, it can expect:

Which of the following is not a parameter to be determined by the risk manager that affects the level of economic credit capital:

Economic capital under the Earnings Volatility approach is calculated as:

Which of the following belong in a credit risk report?

Under the KMV Moody's approach to calculating expectingdefault frequencies (EDF), firms' default on obligations is likely when:

If A and B be two debt securities, which of the following is true?

Which of the following statements is true:

I. Basel II requires banks to conduct stress testing in respect of their credit exposures in addition to stress testing for market risk exposures

II. Basel II requires pooled probabilities of default (and not individual PDs for each exposure) to be used for credit risk capital calculations

Which of the following are valid approaches to leveraging external loss data for modeling operational risks:

I. Both internal and external losses can be fitted with distributions,and a weighted average approach using these distributions is relied upon for capital calculations.

II. External loss data is used to inform scenario modeling.

III. External loss data is combined with internal loss data points, and distributions fitted to the combined data set.

IV. External loss data is used to replace internal loss data points to create a higher quality data set to fit distributions.

Which of the following statements are correct:

I. A training set is a set of data used to create a model, while a control set is a set of data is used to prove that the model actually works

II. Cleansing, aggregating or ensuring data integrity is a task for the IT department, and is not a risk manager's responsibility

III. Lack of information on the quality of underlying securities and assets was a major cause of the collapse in the CDO markets during the credit crisis that started in 2007

IV. The problem of lack of historical data can be addressed reasonably satisfactorily by using analytical approaches

Under the contingent claims approach to measuring credit risk, which of the following factors does NOT affect credit risk:

Which of the beloware a way to classify risk governance structures:

A Reactive, Preventative and Active

B.  

C.  

D.  

Which of the following statements is NOT true in relation to the recent financial crisis of 2007-08?

Which of the following is not a limitation of the univariate Gaussian model to capture the codependence structure between risk factros used for VaR calculations?

An error by a third party service provider results in a loss to a client that the bank has to make up. Such as loss would be categorized per Basel IIoperational risk categories as:

Which loss event type is the failure to timely deliver collateral classified as under the Basel II framework?

Which of the following best describes economic capital?

Which of the following are valid criticisms of value at risk:

I. There are many risks that a VaR framework cannot model

II. VaR does not considerliquidity risk

III. VaR does not account for historical market movements

IV. VaR does not consider the risk of contagion

The CDS quote for the bonds of Bank X is 200 bps. Assuming a recovery rate of 40%, calculate the default hazard rate priced in the CDS quote.

A financial institution is considering shedding a business unit to reduce its economic capital requirements. Which of the following is an appropriate measure of theresulting reduction in capital requirements?

Which of the following best describes a 'break clause ?

When building a operational loss distribution by combining a loss frequency distribution and a loss severity distribution, it is assumed that:

I. The severity of losses is conditional upon the numberof loss events

II. The frequency of losses is independent from the severity of the losses

III. Both the frequency and severity of loss events are dependent upon the state of internal controls in the bank

Which of the following data sources are expected to influence operational risk capital under the AMA:

I. Internal Loss Data (ILD)

II. External Loss Data (ELD)

III. Scenario Data (SD)

IV. Business Environment and Internal Control Factors (BEICF)

Which of the following represents a riskier exposure for a bank: A LIBOR based loan, or an Overnight Indexed Swap? Which of the two rates is expected to be higher?

Assume the same counterparty and the same notional.

In estimating credit exposure for a line of credit, it is usual to consider:

Which of the following statements is true in respect of a non financial manufacturing firm?

I. Market risk is not relevant to the manufacturing firm as it does not take proprietary positions

II. The firm faces market risks as an externality which it must bear and has no control over

III. Market risks can make a comparative assessment of profitability over time difficult

IV. Market risks for a manufacturing firm are not directionally biased and do not increase the overall risk of the firm as they net to zero over a long term time horizon

For a hypotherical UoM, the number of losses in two non-overlapping datasets is 24 and 32 respectively. The Pareto tail parameters for the two datasets calculated using the maximum likelihood estimation method are 2 and 3. What is an estimate of the tail parameter of the combined dataset?

A bullet bond and an amortizing loan are issued at the same time with the same maturity and with the same principal. Which of these would have a greater credit exposure halfway through their life?