Forward rate agreements (FRA) are:
The exercise for an American type option prior to expiration day is virtually certain in the following case:
Which one of the following four physical commodities markets has the right combination of characteristics that generally allows short selling in the market, without making the short-selling transaction prohibitively expensive?
Which of the following statements defines Value-at-risk (VaR)?
In the United States, stock investors must comply with the Regulation T of the Federal Reserve Bank and may borrow up to ___ of the value of the securities from their brokers.
Which one of the following four statements regarding commodity derivative risks is INCORRECT?
Gamma Bank estimates its monthly portfolio volatility at 5%.The portfolio's annual volatility is closest to which of the following?
Jack Richardson wants to compute the 1-month VaR of a portfolio with a market value of USD 10 million, with an average monthly return of 1% and average monthly standard deviation of 1.5%. What is the portfolio VaR at 99% confidence level?
Probability Cumulative Normal distribution
An options trader for a large institutional investor takes a long equity option position. Which of the following risks need to be considered when taking this position?
I. All the risks of underlying equities
II. Perceived volatility changes
III. Future dividends yields
IV. Risk-free interest rates
Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions in banks?
Which of the following statements describes correctly the objectives of position mapping ?
Which one of the following four statements about preferred shares is INCORRECT?
For two variables, which of the following is equal to the average product of the deviations from their respective means?
Which of the following statements regarding CDO-squared is correct?
I. CDO-squared use other CDOs and CMOs as collateral.
II. Risk assessment of CDO-squared is almost impossible due to their complexity.
III. CDO-squared have lower credit risk than CMOs but higher than CDOs.
Which of the following risk measures are based on the underlying assumption that interest rates across all maturities change by exactly the same amount?
I. Present value of a basis point.
II. Yield volatility.
III. Macaulay's duration.
IV. Modified duration.
What are some of the drawbacks of correlation estimates? Which of the following statements identifies major problems with correlation calculations?
I. Correlation estimates are not able to capture increases in factor co-movements in extreme market scenarios.
II. Correlation estimates tend to be unstable.
III. Historical correlations may not forecast future correlations correctly.
IV. Correlation estimates assume normally distributed returns.
A portfolio manager is interested in computing risk measures for his bond investment portfolio. Which of the following measures the sensitivity of duration to interest rates?
In its VaR calculations, JPMorgan Chase uses an expected tail-loss methodology which approximates losses at the 99% confidence level. This methodology consists of two subsequent steps to estimate the VaR. Which of the following explains this two-step methodology?
Which of the following assets on the bank's balance sheet has greatest endogenous liquidity risk?
Which one of the following four attributes would likely help a trader using exchange-traded options to establish a leveraged position?
Gamma Bank has $300 million in loans and $200 million in deposits. If the modified duration of the loans is estimated to be 2, and the modified duration of the deposits is estimated to be 1, then the change in Gamma Bank's equity value per 1% change in yield will be:
A customer of EtaBank, Alfred Fall, fell on the marble floors of the bank and sustained substantial injuries. Subsequently, he won a personal injury claim of $50,000 against EtaBank. How should EtaBank's operational loss data event information database categorize this event?
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?
Nijenhaus Bruch is currently creating a program of operational loss data collection at a bank with a large branch network. Which minimal data standards should this collection approach include to meet minimum loss data collecting standards?
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
According to the principles of the Basel II Accord, the implementation and relative weights of the elements of the operational risk framework depend on:
I. The culture of the financial institution
II. Regulatory drivers
III. Business drivers
IV. The bank's reporting currency
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?
Bank Milo 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 what days does the bank face negative cumulative liquidity?
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
Gamma Bank is operating in a highly volatile interest rate environment and wants to stabilize its net income by shifting the sources of its earnings from interest rate sensitive sources to less interest rate sensitive sources. All of the following strategies can help achieve this objective EXCEPT:
The Sarbanes-Oxley Act includes one of the following four requirements for financial institutions in the United States:
Which of the following are the most common methods to increase liquidity in stressed conditions?
I. Selling or securitizing assets.
II. Obtaining additional credit lines.
III. Securing a better credit rating.
A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss than if the market had remained stable. However, if the market drops, the customer will benefit from the incorrect accounting and gain from this trade. This trading scenario can serve as an example that
An associate from the finance group has been identified as an operational risk coordinator (ORC) for her department. To fulfill her ORC responsibilities the associate will need to:
I. Provide main communication contact with operational risk department
II. Provide main reporting contact with audit department
III. Coordinate collection of key risk indicators in her area
IV. Coordinate training and awareness activities in her area
Which one of the following statements correctly identifies risks in foreign exchange forwards?
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's expected loss be? What is the expected loss of this loan?
Which one of the following four options is NOT a typical component of a currency swap?
Which one of the following four mathematical option pricing models is used most widely for pricing European options?
A risk manager is analyzing a call option on the GBP with a vega of 0.02. When the perceived future volatility increases by 1%, the call option
Which of the following factors would typically increase the credit spread?
I. Increase in the probability of default of the issuer.
II. Decrease in risk premium.
III. Decrease in loss given default of the issuer.
IV. Increase in expected loss.
Which of the following risk types are historically associated with credit derivatives?
I. Documentation risk
II. Definition of credit events
III. Occurrence of credit events
IV. Enterprise risk
From the bank's point of view, repricing the retail debt portfolio will introduce risks of fluctuations in:
II. Loss given default
III. Interest rates
IV. Bank spreads
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?
The pricing of credit default swaps is a function of all of the following EXCEPT:
An asset manager for a large mutual fund is considering forward exchange positions traded in a clearinghouse system and needs to mitigate the risks created as a result of this operation. Which of the following risks will be created as a result of the forward exchange transaction?
In the United States, during the second quarter of 2009, transactions in foreign exchange derivative contracts comprised approximately what proportion of all types of derivative transactions between financial institutions?
All of the four following exotic options are path-independent options, EXCEPT:
To safeguard its capital and obtain insurance if the borrowers cannot repay their loans, Gamma Bank accepts financial collateral to manage its credit risk and mitigate the effect of the borrowers' defaults. Gamma Bank will typically accept all of the following instruments as financial collateral EXCEPT?
To estimate a partial change in option price, a risk manager will use the following formula:
Which one of the following changes would typically increase the price of a fixed income instrument, such as a bond?
In the United States, foreign exchange derivative transactions typically occur between