Exam 9: Market Risk

From 1998 to 2010 the market risk capital requirement was uniformly a large proportion of the total risk capital requirements for Australian banks, and losses due to market risk continued to increase during and post the global financial crisis.

The general market risk charges reflect the product of the modified durations and interest rate shocks expected for each maturity.

Which of the following statements is true?

Why is market risk measurement important?

Which of the following is a measure of systematic risk?

In sequential order, the steps involved in back simulation are as follows: measure exposures, measure sensitivity, measure risk, measure risk again, rank days by risk from worst to best, VAR.

Which of the following are problems associated with the BIS approach to calculating capital requirements for equities?

What is meant by horizontal offset?

Which of the following statements is true?

Which of the following is an adequate definition of the term general market risk charge?

Which of the following statements is true?

Assume an FI holds three different positions. The following DEAR information is available for the positions. Position 1 is a five-year zero coupon bonds with DEAR of $12 500, position 2 is a CHF spot contract with DEAR of $9500 and the third position are Australian equities with DEAR of $34 500. Which of the following statements is true in relation to these positions?

The N-day market value at risk (VAR) equals daily earning at risk multiplied by the square root of N if we assume that yield shocks are:

Define the following terms within the context of the BIS standardised framework: a. specific risk charge b. general market risk charge c. vertical offsets d. horizontal offset.

Market risk is defined as the risk related to the uncertainty of an FI's earnings on its trading portfolio caused by changes in market conditions.

Which of the following statements is true?

Assume an FI holds three different positions. The following DEAR information is available for the positions. Position 1 is a five-year zero coupon bonds with DEAR of $12 500, position 2 is a CHF spot contract with DEAR of $9500 and the third position are Australian equities with DEAR of $34 500. The five-year zero coupon bonds and the CHF spot position have a negative correlation of 0.5, the correlation between the zero coupon bonds and the Australian equities is positive 0.5 and the correlation between the CHF spot contract and the Australian equities is positive 0.2. What is the DEAR of the portfolio?

Reasons why market risk measurement is important include:

Assume an FI's daily earnings at risk are $5000 and that the FI is required to hold its position for 10 days. What is the position's VAR (round to two decimals)?

Which of the following statements best describes the relationship between total risk, systematic risk and unsystematic risk?