Question 1

Why is market risk measurement important?

Accepted Answer

Market risk is related to the uncertaint

Question 2

Which of the following statements is true?

Accepted Answer

A) Beta is a measure of systematic risk reflecting the co-movement of the returns on a specific share with returns on shares in the same industry 
B) Beta is a measure of unsystematic risk reflecting the co-movement of the returns on a specific share with returns on shares in the same industry. 
C) Beta is a measure of unsystematic risk reflecting the co-movement of the returns on a specific share with returns on the market portfolio. 
D) Beta is a measure of systematic risk reflecting the co-movement of the returns on a specific share with returns on the market portfolio. 
A) Beta is a measure of systematic risk reflecting the co-movement of the returns on a specific share with returns on shares in the same industry 
B) Beta is a measure of unsystematic risk reflecting the co-movement of the returns on a specific share with returns on shares in the same industry. 
C) Beta is a measure of unsystematic risk reflecting the co-movement of the returns on a specific share with returns on the market portfolio. 
D) Beta is a measure of systematic risk reflecting the co-movement of the returns on a specific share with returns on the market portfolio.

Question 3

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

Accepted Answer

A) The approach assumes the same systematic risk factor for every stock. 
B) The approach assumes the same unsystematic risk factor for every stock. 
C) The approach does not fully consider the benefits from portfolio diversification. 
D) The approach assumes the same systematic risk factor for every stock and the approach does not fully consider the benefits from portfolio diversification. 
A) The approach assumes the same systematic risk factor for every stock. 
B) The approach assumes the same unsystematic risk factor for every stock. 
C) The approach does not fully consider the benefits from portfolio diversification. 
D) The approach assumes the same systematic risk factor for every stock and the approach does not fully consider the benefits from portfolio diversification.

Question 4

Consider the following hypothetical foreign exchange portfolio: What are the daily earnings at risk for the portfolio?

Accepted Answer

A) $200 / 0.45 = $444.44 
B) $200 * 0.45 = $90.00 
C) ($200 / 0.45) / 100 = $4.44 
D) ($200 * 0.45) / 100 = $0.90 
A) $200 / 0.45 = $444.44 
B) $200 * 0.45 = $90.00 
C) ($200 / 0.45) / 100 = $4.44 
D) ($200 * 0.45) / 100 = $0.90

Question 5

Which of the following statements is true?

Accepted Answer

A) Unsystematic risk is specific to a particular firm. 
B) Unsystematic risk is specific to a particular industry. 
C) Unsystematic risk is specific to a particular geographical area. 
D) Unsystematic risk relates to the whole market. 
A) Unsystematic risk is specific to a particular firm. 
B) Unsystematic risk is specific to a particular industry. 
C) Unsystematic risk is specific to a particular geographical area. 
D) Unsystematic risk relates to the whole market.

Question 6

Assume the dollar market value of an FI's position is $200 000 with a modified duration of 4 years.The potential adverse move in the yield is 16.5 basis points.What is the VAR of the position if the FI is required to hold the position for 6 days (round to two decimals)?

Accepted Answer

A) $1 320.00 
B) $3 233.33 
C) $330.00 
D) $200 000.00 
A) $1 320.00 
B) $3 233.33 
C) $330.00 
D) $200 000.00

Question 7

Assume the market value of a position is $100 000 and that its modified duration is 3.30 years.Further assume that the potential adverse move in yield is 16.5 basis points.What are the daily earnings at risk for this position (round to two decimals)?

Accepted Answer

A) $54.45 
B) $544.50 
C) $54 450.00 
D) Not enough information to solve the question. 
A) $54.45 
B) $544.50 
C) $54 450.00 
D) Not enough information to solve the question.

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is true?

Accepted Answer

A) In a well-diversified portfolio, unsystematic risk can be largely diversified away, leaving behind systematic. 
B) In a well-diversified portfolio, systematic risk can be largely diversified away, leaving behind unsystematic. 
C) In a well-diversified portfolio, both systematic and unsystematic risk can be largely diversified away. 
D) No matter how well diversified a portfolio is, unsystematic and systematic are always existent. 
A) In a well-diversified portfolio, unsystematic risk can be largely diversified away, leaving behind systematic. 
B) In a well-diversified portfolio, systematic risk can be largely diversified away, leaving behind unsystematic. 
C) In a well-diversified portfolio, both systematic and unsystematic risk can be largely diversified away. 
D) No matter how well diversified a portfolio is, unsystematic and systematic are always existent.

Question 10

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:

Accepted Answer

A) dependent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N number of days. 
B) independent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N number of days. 
C) dependent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N minus one number of days. 
D) independent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N minus one number of days. 
A) dependent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N number of days. 
B) independent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N number of days. 
C) dependent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N minus one number of days. 
D) independent, that daily volatility is approximately constant and that the FI is 'locked in' to holding the asset in question for N minus one number of days.

Question 11

Which of the following statements is true?

Accepted Answer

A) The assumption that yield changes are normally distributed will result in an exact estimation of extreme outcomes. 
B) The assumption that yield changes are normally distributed will generally result in overestimating extreme outcomes. 
C) The assumption that yield changes are normally distributed will generally result in underestimating extreme outcomes. 
D) Assumptions regarding the distribution of yields are not significant in market risk measurement models. 
A) The assumption that yield changes are normally distributed will result in an exact estimation of extreme outcomes. 
B) The assumption that yield changes are normally distributed will generally result in overestimating extreme outcomes. 
C) The assumption that yield changes are normally distributed will generally result in underestimating extreme outcomes. 
D) Assumptions regarding the distribution of yields are not significant in market risk measurement models.

Question 12

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?

Accepted Answer

A) The DEAR of the portfolio can be calculated by simply adding up the individual DEARs. 
B) The DEAR of the portfolio can be calculated by simply multiplying the individual DEARs. 
C) The DEAR of the portfolio can be calculated by simply adding up the individual DEARs and adjusting the sum by an error factor gamma. 
D) None of the listed options are correct. 
A) The DEAR of the portfolio can be calculated by simply adding up the individual DEARs. 
B) The DEAR of the portfolio can be calculated by simply multiplying the individual DEARs. 
C) The DEAR of the portfolio can be calculated by simply adding up the individual DEARs and adjusting the sum by an error factor gamma. 
D) None of the listed options are correct.

Question 13

Which of the following statements is true?

Accepted Answer

A) The major models used by banks in calculating market risk exposures are RiskMetrics, Monaco simulation and Historic (back) calculation. 
B) The major models used by banks in calculating market risk exposures are CreditMetrics, Monte Carlo simulation and Historic (back) calculation. 
C) The major models used by banks in calculating market risk exposures are RiskMetrics, Monte Carlo simulation and Historic (back) calculation. 
D) The major models used by banks in calculating market risk exposures are CreditMetrics, Monte Carlo simulation and Forward calculation. 
A) The major models used by banks in calculating market risk exposures are RiskMetrics, Monaco simulation and Historic (back) calculation. 
B) The major models used by banks in calculating market risk exposures are CreditMetrics, Monte Carlo simulation and Historic (back) calculation. 
C) The major models used by banks in calculating market risk exposures are RiskMetrics, Monte Carlo simulation and Historic (back) calculation. 
D) The major models used by banks in calculating market risk exposures are CreditMetrics, Monte Carlo simulation and Forward calculation.

Question 14

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

Accepted Answer

A) Total risk is the product of systematic and unsystematic risk. 
B) Total risk is the sum of systematic and unsystematic risk. 
C) Total risk is the quotient of systematic and unsystematic risk. 
D) Total risk is the difference between systematic and unsystematic risk. 
A) Total risk is the product of systematic and unsystematic risk. 
B) Total risk is the sum of systematic and unsystematic risk. 
C) Total risk is the quotient of systematic and unsystematic risk. 
D) Total risk is the difference between systematic and unsystematic risk.

Question 15

What is meant by horizontal offset?

Accepted Answer

A) The deduction of capital charges because long and short positions of the same maturities have durations that more than perfectly hedge each other. 
B) The assignment of additional capital charges because long and short positions of the same maturities have durations that do not perfectly hedge each other. 
C) The deduction of additional capital because long and short positions of different maturities more than perfectly hedge each other. 
D) The assignment of additional capital charges because long and short positions of different maturities do not perfectly hedge each other. 
A) The deduction of capital charges because long and short positions of the same maturities have durations that more than perfectly hedge each other. 
B) The assignment of additional capital charges because long and short positions of the same maturities have durations that do not perfectly hedge each other. 
C) The deduction of additional capital because long and short positions of different maturities more than perfectly hedge each other. 
D) The assignment of additional capital charges because long and short positions of different maturities do not perfectly hedge each other.

Why is market risk measurement important?

Which of the following statements is true?

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

Consider the following hypothetical foreign exchange portfolio: What are the daily earnings at risk for the portfolio?

Which of the following statements is true?

Assume the dollar market value of an FI's position is $200 000 with a modified duration of 4 years.The potential adverse move in the yield is 16.5 basis points.What is the VAR of the position if the FI is required to hold the position for 6 days (round to two decimals)?

Assume the market value of a position is $100 000 and that its modified duration is 3.30 years.Further assume that the potential adverse move in yield is 16.5 basis points.What are the daily earnings at risk for this position (round to two decimals)?

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?

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:

Which of the following statements is true?

Which of the following statements is true?

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

What is meant by horizontal offset?

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

Why is market risk measurement important?

Which of the following statements is true?

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

Consider the following hypothetical foreign exchange portfolio: What are the daily earnings at risk for the portfolio?

Which of the following statements is true?

Assume the dollar market value of an FI's position is $200 000 with a modified duration of 4 years.The potential adverse move in the yield is 16.5 basis points.What is the VAR of the position if the FI is required to hold the position for 6 days (round to two decimals)?

Assume the market value of a position is $100 000 and that its modified duration is 3.30 years.Further assume that the potential adverse move in yield is 16.5 basis points.What are the daily earnings at risk for this position (round to two decimals)?

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?

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:

Which of the following statements is true?

Which of the following statements is true?

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

What is meant by horizontal offset?

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