Question 1

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:

Question 2

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.

Question 3

Which of the following will be a loss not covered by operational risk as defined under Basel II?

Question 4

The generalized Pareto distribution, when used in the context of operational risk, is used to model:

Question 5

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

Question 6

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

Question 7

Which of the following cannot be used as an internal credit rating model to assess an individual borrower:

Question 8

Conditional default probabilities modeled under CreditPortfolio view use a:

Question 9

For a FX forward contract, what would be the worst time for a counterparty to default (in terms of the maximum likely credit exposure)

Question 10

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)

Question 11

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

Question 12

Credit exposure for derivatives is measured using

Question 13

Under thebasic indicator approach to determining operational risk capital, operational risk capital is equal to:

Question 14

Random recovery rates in respectof credit risk can be modeled using:

Question 15

Which of the following credit risk models includes a consideration of macro economic variables such asunemployment, balance of payments etc to assess credit risk?

Question 16

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?

Question 17

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?

Question 18

A stock that follows the Weiner process has its future price determined by:

Question 19

Under the CreditPortfolio View approach to credit risk modeling, which of the following best describes the conditional transition matrix:

Question 20

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

Question 21

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.

Question 22

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?

Question 23

Under the ISDA MA, which of the following terms best describes the netting applied upon the bankruptcy of a party?

Question 24

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

Question 25

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?

Question 26

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.

Question 27

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

Question 28

Which of the following are considered properties of a 'coherent' risk measure:

I. Monotonicity

II. Homogeneity

III. Translation Invariance

IV. Sub-additivity

Question 29

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?

Question 30

The risk that a counterparty fails to deliver its obligation upon settlement while having received the leg owed to it is called:

Question 31

Under the standardized approach to calculating operational risk capital under Basel II, negative regulatory capital charges for any of the business units:

Question 32

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

Question 33

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

Question 34

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?

Question 35

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)

Question 36

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)