According to the Basel II framework, subordinated term debt that was originally issued 4 years ago with amaturity of 6 years is considered a part of:
Which of the following statements is true:
I. When averaging quantiles of two Pareto distributions, the quantiles of theaveraged models are equal to the geometric average of the quantiles of the original models based upon the number of data items in each original model.
II. When modeling severity distributions, we can only use distributions which have fewer parameters thanthe number of datapoints we are modeling from.
III. If an internal loss data based model covers the same risks as a scenario based model, they can can be combined using the weighted average of their parameters.
IV If an internal loss model and a scenario based model address different risks, the models can be combined by taking their sums.
Which of the following will be a loss not covered by operational risk as defined under Basel II?
The generalized Pareto distribution, when used in the context of operational risk, is used to model:
Which of the following losses can be attributed to credit risk:
I. Losses in a bond's value from a credit downgrade
II. Losses in a bond's value from an increase in bond yields
III. Losses arising from a bond issuer'sdefault
IV. Losses from an increase in corporate bond spreads
When modeling severity of operational risk losses using extreme value theory (EVT), practitioners often use which of the following distributions to model loss severity:
I. The 'Peaks-over-threshold' (POT) model
II. Generalized Pareto distributions
III. Lognormal mixtures
IV. Generalized hyperbolic distributions
Which of the following cannot be used as an internal credit rating model to assess an individual borrower:
Conditional default probabilities modeled under CreditPortfolio view use a:
For a FX forward contract, what would be the worst time for a counterparty to default (in terms of the maximum likely credit exposure)
For a 10 year interest rate swap, what would be the worst time for a counterparty to default (in terms of the maximum likely credit exposure)
Which of the following steps are required for computing the aggregate distribution for a UoM for operational risk once loss frequency and severity curves have been estimated:
I. Simulate number of losses based on the frequency distribution
II. Simulate the dollar value of the losses from the severity distribution
III. Simulate random number from the copula used to model dependence between the UoMs
IV. Compute dependent losses from aggregate distribution curves
Credit exposure for derivatives is measured using
Under thebasic indicator approach to determining operational risk capital, operational risk capital is equal to:
Random recovery rates in respectof credit risk can be modeled using:
Which of the following credit risk models includes a consideration of macro economic variables such asunemployment, balance of payments etc to assess credit risk?
If the default hazard rate for a company is 10%, and the spread on its bondsover the risk free rate is 800 bps, what is the expected recovery rate?
A zero coupon corporate bond maturing in an year has a probability of default of 5% and yields 12%. The recovery rate is zero. What is the risk free rate?
A stock that follows the Weiner process has its future price determined by:
Under the CreditPortfolio View approach to credit risk modeling, which of the following best describes the conditional transition matrix:
Pick underlying risk factors for a position in an equity index option:
I. Spot value for the index
II. Risk free interest rate
III. Volatility of the underlying
IV. Strike price for the option
Which of the following statements are true:
I. Pre-settlement risk is the risk that one of the parties to a contract might default prior to the maturity date or expiry of the contract.
II. Pre-settlement risk can be partly mitigated by providing for early settlement in the agreements between the counterparties.
III. The current exposure from an OTC derivatives contract is equivalent to its current replacement value.
IV. Loan equivalent exposures are calculated even for exposures that are not loans as a practical matter for calculating credit risk exposure.
There are two bonds in a portfolio, each with a market value of $50m. The probability of default of the two bonds are 0.03 and 0.08 respectively, over a one year horizon. If the default correlation is 25%, what is the one year expected loss on this portfolio?
Under the ISDA MA, which of the following terms best describes the netting applied upon the bankruptcy of a party?
Which of the following objectives are targeted by rating agencies when assigning ratings:
I. Ratings accuracy
II. Ratings stability
III. High accuracy ratio (AR)
IV. Ranked ratings
A corporate bond maturing in 1 year yields 8.5% per year,while a similar treasury bond yields 4%. What is the probability of default for the corporate bond assuming the recovery rate is zero?
Which of the following are true:
I. The total of the component VaRs for all components of a portfolio equals the portfolio VaR.
II. The total of the incremental VaRs for each position in a portfolio equals the portfolio VaR.
III. Marginal VaR and incremental VaR are identical for a $1 change in the portfolio.
IV. The VaR for individual components of a portfolio is sub-additive, ie the portfolio VaR is less than (or in extreme cases equal to) the sum of the individual VaRs.
V. The component VaR for individual components of a portfolio is sub-additive, ie the portfolio VaR is less than the sum of the individual component VaRs.
Under the CreditPortfolio View model of credit risk, the conditional probability of default will be:
Which of the following are considered properties of a 'coherent' risk measure:
I. Monotonicity
II. Homogeneity
III. Translation Invariance
IV. Sub-additivity
What percentage of average annual gross income is to be held as capital for operational risk under the basic indicator approach specified under Basel II?
The risk that a counterparty fails to deliver its obligation upon settlement while having received the leg owed to it is called:
Under the standardized approach to calculating operational risk capital under Basel II, negative regulatory capital charges for any of the business units:
Which of the following decisions need to be made as part of laying down a system for calculating VaR:
I. The confidence level and horizon
II. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation
III. Whether the VaR is to be disclosed in the quarterly financial statements
IV. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10 days
The definition of operational risk per Basel II includes which of the following:
I. Riskof loss resulting from inadequate or failed internal processes, people and systems or from external events
II. Legal risk
III. Strategic risk
IV. Reputational risk
Which of the following is a measure of the level of capital that an institution needs to hold in order to maintain a desired credit rating?
For a back office function processing 15,000 transactions a day with an error rate of 10 basis points, what is the annual expected loss frequency (assume 250 days in a year)
Which of the following formulae describes CVA (Credit Valuation Adjustment)? All acronyms have their usual meanings (LGD=Loss Given Default, ENE=Expected Negative Exposure, EE=Expected Exposure, PD=Probability of Default, EPE=Expected Positive Exposure, PFE=Potential Future Exposure)