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NEW QUESTION 158
Which one of the following four statements about hedging is INCORRECT?
- A. A large number of hedge positions is generally required to match the underlying transaction completely.
- B. For a fully hedged portfolio, any changes in markets prices will typically produce significant changes in
the market value of the portfolio. - C. Traders can hedge their portfolio risks by taking a position in a different instrument.
- D. Traders can hedge their risks by taking an appropriate position in the underlying instrument.
Answer: B
NEW QUESTION 159
All of the following factors generally explain the equity bid-offer spread in a market EXCEPT:
- A. Market depth
- B. Competition among market makers
- C. Market volatility
- D. Interest rates
Answer: D
NEW QUESTION 160
Which one of the four following statements about Basis point values is correct?
Basis point value:
- A. Is a widely used statistical tool used to measure market risk.
- B. Refers to the change in the value of a fixed income position for a very small change yields.
- C. Provides a quick estimate of the sensitivity of the bank's banking book, to increasing volatility in interest
rates. - D. Is a risk sensitivity measure used to measure the point spread risk in the banking book.
Answer: B
NEW QUESTION 161
James manages a loans portfolio. He has to evaluate a large number of loans to choose which of them he will
keep in the bank's books. Which one of the following four loans would he be most likely to sell to another
bank?
- A. Loan to a commercial customer with a good payment history and collateral.
- B. Loan to a major customer who is also a director and a large owner.
- C. Loan made to a highly risky borrower that is fully collateralized by the customer's deposits.
- D. Loan to a borrower who has been delinquent previously, but now is performing as agreed.
Answer: A
NEW QUESTION 162
Most loans and deposits in the interbank market have a maturity of:
- A. More than 10 years
- B. More than 3 years but less than 5 years
- C. More than 5 years but less than 10 years
- D. Less than one year
Answer: D
NEW QUESTION 163
SigmaBank has many branches that offer the same products and services. Which one of the four following
statement presents an advantage of using RCSA questionnaire approach in the SigmaBank's operational risk
framework?
- A. It provides a forum for an in-depth discussion of the operational risks in the firm.
- B. The results can be collected electronically and the responses compared to identify themes, trends and
areas of potential control weakness or elevated risk. - C. The questionnaires are usually sent to specific nominated parties for completion.
- D. This approach ensures that there has been full participation in the scoring, rather than a single view.
Answer: B
NEW QUESTION 164
Bank Alpha is making a decision about lending 10-year loans in a sector that is fairly illiquid and is looking at
various options to fund the loans. Which of the following options to fund the loans exhibits the most
exogenous liquidity risk?
- A. The 1-year treasury markets
- B. The 6-month LIBOR markets
- C. Foreign exchange markets
- D. Overnight interbank markets
Answer: D
NEW QUESTION 165
A bank customer can use either a plain vanilla option or an option contract with volumetric flexibility to
reduce the following risks:
I. Market Risk
II. Basis Risk
III. Operational Risk
- A. I, II
- B. II
- C. II, III
- D. I
Answer: A
NEW QUESTION 166
As an example of the balance sheet effect, if rates rise, Delta Bank can expect:
- A. Its fixed rate assets to drop in value, while that effect will be amplified by a reduction in the value of its
fixed rate liabilities. - B. Its fixed rate assets to drop in value, although that effect will be offset by a reduction in the value of its
fixed rate liabilities. - C. Its fixed rate assets to increase in value, while that effect will be amplified by a reduction in the value of
its fixed rate liabilities. - D. Its fixed rate assets to increase in value, although that effect will be offset by a reduction in the value of
its fixed rate liabilities.
Answer: B
NEW QUESTION 167
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?
- A. Auditing
- B. Marketing
- C. Planning
- D. Training
Answer: A
NEW QUESTION 168
A credit portfolio manager analyzes a large retail credit portfolio. Which of the following factors will represent
typical disadvantages of market-linked credit risk drivers?
I. Need to supply a large number of input parameters to the model
II. Slow computation speed due to higher simulation complexity
III. Non-linear nature of the model applicable to a specific type of credit portfolios
IV. Need to estimate a large number of unknown variable and use approximations
- A. I, II
- B. II, III
- C. III, IV
- D. I
Answer: A
NEW QUESTION 169
A risk manager is considering how to best quantify option price dynamics using mathematical option pricing
models. Which of the following variables would most likely serve as an input in these models?
I. Implicit parameter estimate based on observed market prices
II. Estimates of sensitivity of option prices to parameter changes
III. Theoretical option determination based on assumptions
- A. I, III
- B. II
- C. II, III
- D. I, II, III
Answer: D
NEW QUESTION 170
Which one of the following four regulatory drivers for operational risk management includes risk and control
requirements for financial statements in the United States?
- A. Solvency II
- B. The Markets in Financial Instruments Directive
- C. Basel II Accord
- D. The Sarbanes-Oxley Act
Answer: D
NEW QUESTION 171
Suppose that a regulator deems all corporate debt to have the same risk level. Which of the following behavior
of banks would be an example of regulatory arbitrage?
- A. Banks shift their exposure to more risky corporate debt.
- B. Banks decrease their exposure to corporate debt.
- C. Banks increase their exposure to corporate debt.
- D. Banks shift their exposure to less risky corporate debt.
Answer: A
NEW QUESTION 172
Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions
in banks?
- A. Bond
- B. Derivative
- C. Cash
- D. Basis
Answer: C
NEW QUESTION 173
The probability of default on a bond is 3%, and in the case of default, investors expect to lose 70% of their
investment. The bond's risk premium is 1.9%. The expected loss and the credit spread of the bond are,
respectively:
- A. 1.6% and 2.5%.
- B. 2.1% and 4%.
- C. 1.6% and 3.5%.
- D. 2.1% and 3%.
Answer: B
NEW QUESTION 174
US based Alpha Bank holds European corporate bonds and US inflation-indexed Treasury notes in its
investment portfolio. This investment portfolio is not exposed to changes in which of the following?
- A. European interest rates
- B. Equity values
- C. Credit spread on the corporate bonds
- D. Foreign exchange rates
Answer: B
NEW QUESTION 175
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