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1. 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
A) II
B) Neither statement is true
C) I & II
D) I
2. If the loss given default is denoted by L, and the recovery rate by R, then which of the following represents the relationship between loss given default and the recovery rate?
A) R = 1 + L
B) R = 1 / L
C) L = 1 + R
D) R = 1 - L
3. Once the frequency and severity distributions for loss events have been determined, which of the following is an accurate description of the process to determine a full loss distribution for operational risk?
A) A firm wide operational risk distribution is generated by adding together the frequency and severity distributions
B) The frequency distribution alone forms the basis for the loss distribution for operational risk
C) A firm wide operational risk distribution is generated using Monte Carlo simulations
D) A firm wide operational risk distribution is set to be equal to the product of the frequency and severity distributions
4. Under the credit migration approach to assessing portfolio credit risk, which of the following are needed to generate adistribution of future portfolio values?
A) A rating migration matrix
B) A specified risk horizon
C) All of the above
D) The forward yield curve
5. Which of the following distributions is generally not used for frequency modeling for operational risk
A) Negative binomial
B) Binomial
C) Gamma
D) Poisson
Solutions:
| Question # 1 Answer: C | Question # 2 Answer: D | Question # 3 Answer: C | Question # 4 Answer: C | Question # 5 Answer: C |
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