Question 1

Which of the following statements is true?

Accepted Answer

A) Under BIS, the capital charge is calculated as DEAR multiplied by the square root of 10 multiplied by 3. 
B) The idea of a minimum multiplication factor of 3 is to create a scheme that is 'incentive compatible'. 
C) Regulators can punish FIs that underestimate their capital charges by raising the multiplication factor to as high as 5. 
D) Under BIS, the capital charge is calculated as DEAR multiplied by the square root of 10 multiplied by 3 and the idea of a minimum multiplication factor of 3 is to create a scheme that is 'incentive compatible'. 
A) Under BIS, the capital charge is calculated as DEAR multiplied by the square root of 10 multiplied by 3. 
B) The idea of a minimum multiplication factor of 3 is to create a scheme that is 'incentive compatible'. 
C) Regulators can punish FIs that underestimate their capital charges by raising the multiplication factor to as high as 5. 
D) Under BIS, the capital charge is calculated as DEAR multiplied by the square root of 10 multiplied by 3 and the idea of a minimum multiplication factor of 3 is to create a scheme that is 'incentive compatible'.

Question 2

Explain the basic concept of the RiskMetric model.What are the major disadvantages? How can the major disadvantages be addressed?

Accepted Answer

RiskMetrics model (or the variance/covar

Question 3

Which of the following statements is true?

Accepted Answer

A) Since regulators are concerned with the social cost of a failure, regulatory models will normally tend to be more conservative than private sector models that are concerned only with the private costs of failure. 
B) Since regulators are concerned with the social cost of a failure, regulatory models will normally tend to be less conservative than private sector models that are concerned only with the private costs of failure. 
C) Regulators and private firms are both concerned with the social cost of a failure and thus their models do not differ. 
D) None of the listed options are correct. 
A) Since regulators are concerned with the social cost of a failure, regulatory models will normally tend to be more conservative than private sector models that are concerned only with the private costs of failure. 
B) Since regulators are concerned with the social cost of a failure, regulatory models will normally tend to be less conservative than private sector models that are concerned only with the private costs of failure. 
C) Regulators and private firms are both concerned with the social cost of a failure and thus their models do not differ. 
D) None of the listed options are correct.

Question 4

What is meant by vertical offset?

Accepted Answer

A) The deduction of capital charges because long and short positions in the same maturity bucket but in different instruments more than offset each other. 
B) The assignment of additional capital charges because long and short positions in the same maturity bucket but in different instruments cannot perfectly offset each other. 
C) The deduction of capital charges because long and short positions in different maturity buckets but in the same instrument more than offset each other. 
D) The assignment of additional capital charges because long and short positions in different maturity buckets but in the same instrument cannot perfectly offset each other. 
A) The deduction of capital charges because long and short positions in the same maturity bucket but in different instruments more than offset each other. 
B) The assignment of additional capital charges because long and short positions in the same maturity bucket but in different instruments cannot perfectly offset each other. 
C) The deduction of capital charges because long and short positions in different maturity buckets but in the same instrument more than offset each other. 
D) The assignment of additional capital charges because long and short positions in different maturity buckets but in the same instrument cannot perfectly offset each other.

Question 5

Which of the following statements is true?

Accepted Answer

A) Daily earnings at risk are defined as the dollar market value of a position plus the price sensitivity of the position plus the potential adverse move in yield. 
B) Daily earnings at risk are defined as the dollar market value of a position multiplied by the price sensitivity of the position multiplied by the potential adverse move in yield. 
C) Daily earnings at risk are defined as (the dollar market value of a position plus the price sensitivity of the position) multiplied by the potential adverse move in yield. 
D) Daily earnings at risk are defined as the dollar market value of a position divided by (the price sensitivity of the position plus the potential adverse move in yield). 
A) Daily earnings at risk are defined as the dollar market value of a position plus the price sensitivity of the position plus the potential adverse move in yield. 
B) Daily earnings at risk are defined as the dollar market value of a position multiplied by the price sensitivity of the position multiplied by the potential adverse move in yield. 
C) Daily earnings at risk are defined as (the dollar market value of a position plus the price sensitivity of the position) multiplied by the potential adverse move in yield. 
D) Daily earnings at risk are defined as the dollar market value of a position divided by (the price sensitivity of the position plus the potential adverse move in yield).

Question 6

Which of the following statements is true?

Accepted Answer

A) The BIS requires banks to define an adverse change in rates as being the 95th percentile. 
B) The BIS requires banks to define an adverse change in rates as being the 97.5th percentile. 
C) The BIS requires banks to define an adverse change in rates as being the 99th percentile. 
D) The BIS requires banks to define an adverse change in rates as being the 99.5th percentile. 
A) The BIS requires banks to define an adverse change in rates as being the 95th percentile. 
B) The BIS requires banks to define an adverse change in rates as being the 97.5th percentile. 
C) The BIS requires banks to define an adverse change in rates as being the 99th percentile. 
D) The BIS requires banks to define an adverse change in rates as being the 99.5th percentile.

Question 7

How can basis risk arise in an FI's operations?

Accepted Answer

A) Basis risk arises because loan rates and deposit rates are inversely related in their movements over time. 
B) Basis risk arises because loan rates and deposit rates are perfectly correlated in their movements over time. 
C) Basis risk arises because loan rates and deposit rates are not correlated in their movements over time. 
D) Basis risk arises because loan rates and deposit rates are not perfectly related in their movements over time. 
A) Basis risk arises because loan rates and deposit rates are inversely related in their movements over time. 
B) Basis risk arises because loan rates and deposit rates are perfectly correlated in their movements over time. 
C) Basis risk arises because loan rates and deposit rates are not correlated in their movements over time. 
D) Basis risk arises because loan rates and deposit rates are not perfectly related in their movements over time.

Question 8

Monte Carlo simulations address the problems imposed by a limited number of actual observations, by generating additional observations.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Accepted Answer

A.SPECIFIC RISK CHARGE: A CHARGE REFLECT

Question 11

A major advantage is that RiskMetrics directly provides a worst-case scenario number, while this is not the case for back simulation.

Accepted Answer

A) True 
 B)False

Question 12

Suppose an FI holds a $2 000 000 trading portfolio with an average beta of 1.0.Over the last year, the daily return on the stock market index was 3 per cent.How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

Accepted Answer

A) $2 000 000 * 0.03 = $60 000 
B) $2 000 000 * 1.0 * 0.03 = $60 000 
C) $2 000 000 * 1.65 * 0.03 = $99 000 
D) $2 000 000 * 2.33 * 0.03 = $139 800 
A) $2 000 000 * 0.03 = $60 000 
B) $2 000 000 * 1.0 * 0.03 = $60 000 
C) $2 000 000 * 1.65 * 0.03 = $99 000 
D) $2 000 000 * 2.33 * 0.03 = $139 800

Question 13

Reasons why market risk measurement is important include:

Accepted Answer

A) management information. 
B) resource allocation. 
C) performance evaluation. 
D) All of the listed options are correct. 
A) management information. 
B) resource allocation. 
C) performance evaluation. 
D) All of the listed options are correct.

Question 14

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

Accepted Answer

A) A charge reflecting the risk of the decline in the liquidity of the trading portfolio. 
B) A charge reflecting the modified duration and interest rate shocks for each maturity. 
C) A charge reflecting the risk of the decline in the credit risk quality of the trading portfolio. 
D) A charge reflecting the duration and interest rate gaps for each maturity. 
A) A charge reflecting the risk of the decline in the liquidity of the trading portfolio. 
B) A charge reflecting the modified duration and interest rate shocks for each maturity. 
C) A charge reflecting the risk of the decline in the credit risk quality of the trading portfolio. 
D) A charge reflecting the duration and interest rate gaps for each maturity.

Question 15

Which of the following statements is true?

Accepted Answer

A) The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying a 4 per cent charge against the gross position in the share. 
B) The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying an 8 per cent charge against the gross position in the share. 
C) The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying a 4 per cent charge against the net position in the share. 
D) The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying an 8 per cent charge against the net position in the share. 
A) The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying a 4 per cent charge against the gross position in the share. 
B) The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying an 8 per cent charge against the gross position in the share. 
C) The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying a 4 per cent charge against the net position in the share. 
D) The BIS charges for unsystematic risk by adding the long and short positions in any given share and applying an 8 per cent charge against the net position in the share.

Question 16

Which of the following statements is true?

Accepted Answer

A) DEAR acknowledges that an FI can sell all its bonds tomorrow, as markets are entirely liquid. 
B) DEAR assumes that an FI cannot sell all its bonds tomorrow, although in reality this might be possible. 
C) DEAR assumes that an FI can sell all its bonds tomorrow, although in reality it might take many days for the FI to unload its position. 
D) DEAR acknowledges that an FI cannot sell all its bonds tomorrow, but that instead it might take many days for the FI to unload its position. 
A) DEAR acknowledges that an FI can sell all its bonds tomorrow, as markets are entirely liquid. 
B) DEAR assumes that an FI cannot sell all its bonds tomorrow, although in reality this might be possible. 
C) DEAR assumes that an FI can sell all its bonds tomorrow, although in reality it might take many days for the FI to unload its position. 
D) DEAR acknowledges that an FI cannot sell all its bonds tomorrow, but that instead it might take many days for the FI to unload its position.

Question 17

RiskMetrics weights more recent observations more highly than past observations, which allows more recent news to be more heavily reflected in the calculation of the standard deviation.

Accepted Answer

A) True 
 B)False

Question 18

Vertical offsets are calculated using the sum of the general market risk charges from long and short positions in each time zone.

Accepted Answer

A) True 
 B)False

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is true?

Accepted Answer

A) The All Ordinaries index is Australia's premier market indicator, which represents the 100 largest companies listed on the Australian Stock Exchange. 
B) The All Ordinaries index is Australia's premier market indicator, which represents the 300 largest companies listed on the Australian Stock Exchange. 
C) The All Ordinaries index is Australia's premier market indicator, which represents the 500 largest companies listed on the Australian Stock Exchange. 
D) The All Ordinaries index is Australia's premier market indicator, which represents all companies listed on the Australian Stock Exchange. 
A) The All Ordinaries index is Australia's premier market indicator, which represents the 100 largest companies listed on the Australian Stock Exchange. 
B) The All Ordinaries index is Australia's premier market indicator, which represents the 300 largest companies listed on the Australian Stock Exchange. 
C) The All Ordinaries index is Australia's premier market indicator, which represents the 500 largest companies listed on the Australian Stock Exchange. 
D) The All Ordinaries index is Australia's premier market indicator, which represents all companies listed on the Australian Stock Exchange.

Which of the following statements is true?

Explain the basic concept of the RiskMetric model.What are the major disadvantages? How can the major disadvantages be addressed?

Which of the following statements is true?

What is meant by vertical offset?

Which of the following statements is true?

Which of the following statements is true?

How can basis risk arise in an FI's operations?

Monte Carlo simulations address the problems imposed by a limited number of actual observations, by generating additional observations.

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

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.

A major advantage is that RiskMetrics directly provides a worst-case scenario number, while this is not the case for back simulation.

Suppose an FI holds a $2 000 000 trading portfolio with an average beta of 1.0.Over the last year, the daily return on the stock market index was 3 per cent.How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

Reasons why market risk measurement is important include:

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

Which of the following statements is true?

Which of the following statements is true?

RiskMetrics weights more recent observations more highly than past observations, which allows more recent news to be more heavily reflected in the calculation of the standard deviation.

Vertical offsets are calculated using the sum of the general market risk charges from long and short positions in each time zone.

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 statements is true?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: The Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters

Exam 9: Market Risk

Which of the following statements is true?

Explain the basic concept of the RiskMetric model.What are the major disadvantages? How can the major disadvantages be addressed?

Which of the following statements is true?

What is meant by vertical offset?

Which of the following statements is true?

Which of the following statements is true?

How can basis risk arise in an FI's operations?

Monte Carlo simulations address the problems imposed by a limited number of actual observations, by generating additional observations.

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

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.

A major advantage is that RiskMetrics directly provides a worst-case scenario number, while this is not the case for back simulation.

Suppose an FI holds a $2 000 000 trading portfolio with an average beta of 1.0.Over the last year, the daily return on the stock market index was 3 per cent.How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

Reasons why market risk measurement is important include:

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

Which of the following statements is true?

Which of the following statements is true?

RiskMetrics weights more recent observations more highly than past observations, which allows more recent news to be more heavily reflected in the calculation of the standard deviation.

Vertical offsets are calculated using the sum of the general market risk charges from long and short positions in each time zone.

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 statements is true?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: The Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Foreign Exchange Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters