Exam 9: Market Risk

One benefit of the historic or back simulation approach is that it does not need calculation of standard deviations and correlations (or assume normal distributions for asset returns) to calculate the portfolio risk figures.

Market risk is defined as the risk related to the uncertainty of an FI's:

Assume an FI holds a foreign exchange position of EUR 200 000 and further assume that the dollar per unit of EUR rate is $1.053/EUR.What is the dollar value of the position (round to two decimals)?

Which of the following statements is true?

Which of the following is a measure of systematic risk?

Assume that the modified duration of a bond is 2.45 years and that the potential adverse move in yield is 16.5 basis points.What is the bond's price volatility (round to two decimals)?

Which of the following statements is true?

Daily earnings at risk (DEAR) is the market risk exposure over the next 72 hours.

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.

Consider a VAR of $100 000 for a 95 per cent confidence level.A problem with this information is that while we know that we will lose more than the VAR amount on 5 days out of every 100, we do not know the maximum amount we can lose.

Which of the following statements is true?

Assume that the dollar market value of a position is $100 000 and the price volatility is 1.50 per cent.What are the daily earnings at risk for this position (round to two decimals)?

Assume the dollar market value of an FI's position is $200 000 and the calculated price volatility is 1.25 per cent.What is the VAR of the position if the FI is required to hold the position for 6 days (round to two decimals)?

Which of the following statements is true?

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)? A)$5000 * $\surd$ 10 = $15 811.39 B)$5000 * $\surd$ (10 - 1) = $15 000.00 C) $\surd$ $5000 * 10 = $707.11 D) $\surd$ $5000 * (10 - 1) = $636.40

Specific risk charge is a charge reflecting the risk of the decline in the liquidity or credit risk quality of the trading portfolio.

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?

Which of the following is an advantage of the back simulation approach?

Which of the following statements is true?

Which of the following statements is true?