Question 1

The front office refers to

Accepted Answer

A)  the compliance office 
B)  the traders who engage in derivatives transactions 
C)  legal counsel 
D)  the risk management function 
E)  senior management 
A)  the compliance office 
B)  the traders who engage in derivatives transactions 
C)  legal counsel 
D)  the risk management function 
E)  senior management B

Question 2

Transactions that do not qualify as hedges must be accounting for as speculation and marked to market each period.

Accepted Answer

A) True 
 B)False  True

Question 3

Responsibilities of senior management include all of the following except

Accepted Answer

A)  establish written policies 
B)  define roles and responsibilities 
C)  identify acceptable strategies 
D)  ensure that control systems are in place 
E)  all of the above 
A)  establish written policies 
B)  define roles and responsibilities 
C)  identify acceptable strategies 
D)  ensure that control systems are in place 
E)  all of the above E

Question 4

Effective risk management requires that the front office clerical operations be separated from the back office trading operations.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following organizations recommends best practices for the investment management industry?

Accepted Answer

A)  PRMIA 
B)  Risk Standards Working Group 
C)  GARP 
D)  G-30 
E)  Financial Accounting Standards Board 
A)  PRMIA 
B)  Risk Standards Working Group 
C)  GARP 
D)  G-30 
E)  Financial Accounting Standards Board

Question 6

Barings lost $1.2 billion because of what?

Accepted Answer

A)  a failure of risk controls in one of its foreign offices 
B)  model risk in their VAR models 
C)  fraudulent transactions 
D)  regulators shut it down because of poor risk management 
E)  speculating on German interest rates 
A)  a failure of risk controls in one of its foreign offices 
B)  model risk in their VAR models 
C)  fraudulent transactions 
D)  regulators shut it down because of poor risk management 
E)  speculating on German interest rates

Question 7

Which of the following methods is not permitted to satisfy the SEC's requirements for disclosure of derivatives activity?

Accepted Answer

A)  an explanation in the chairman's letter 
B)  a Value-at-Risk figure 
C)  a sensitivity analysis 
D)  a table of market values and related terms 
E)  none of the above 
A)  an explanation in the chairman's letter 
B)  a Value-at-Risk figure 
C)  a sensitivity analysis 
D)  a table of market values and related terms 
E)  none of the above

Question 8

Hedge accounting is which of the following?

Accepted Answer

A)  describing all hedges in footnotes to accounting statements 
B)  deferring all recording of hedge profits and losses until the hedge is over 
C)  associating the derivative profit or loss with the instrument being hedged 
D)  all of the above 
E)  none of the above 
A)  describing all hedges in footnotes to accounting statements 
B)  deferring all recording of hedge profits and losses until the hedge is over 
C)  associating the derivative profit or loss with the instrument being hedged 
D)  all of the above 
E)  none of the above

Question 9

End users differ from dealers in that the latter engage in risk management transactions for the purpose of earning a profit off the spread between their buying and selling prices, while the former enter into transactions to manage specific risks.

Accepted Answer

A) True 
 B)False

Question 10

Enterprise risk management is a process in which a firm controls all of its risks in a centralized, integrated manner.

Accepted Answer

A) True 
 B)False

Question 11

Hedge accounting, based on FAS 133, addresses all of the following except

Accepted Answer

A)  fair value hedges 
B)  unfair value hedges 
C)  cash flow hedges 
D)  foreign investment hedges 
E)  speculation 
A)  fair value hedges 
B)  unfair value hedges 
C)  cash flow hedges 
D)  foreign investment hedges 
E)  speculation

Question 12

A company's auditors are not typically trained to serve in a risk management capacity.

Accepted Answer

A) True 
 B)False

Question 13

A risk management system that controls risk within a single department is considered to be centralized.

Accepted Answer

A) True 
 B)False

Question 14

What is the primary activity of a firm's front office?

Accepted Answer

A)  risk management 
B)  trading 
C)  pricing derivative products 
D)  auditing 
E)  none of the above 
A)  risk management 
B)  trading 
C)  pricing derivative products 
D)  auditing 
E)  none of the above

Question 15

In a derivatives operations, back office personnel are in charge of front office personnel.

Accepted Answer

A) True 
 B)False

Question 16

Derivatives dealers primarily conduct derivatives transactions for which of the following reasons?

Accepted Answer

A)  to enhance the returns on their other investment transactions 
B)  to profit off of their ability to execute trades at the right time 
C)  to profit off of their market making services 
D)  to provide services to enhance the overall attractiveness of their product line 
E)  none of the above 
A)  to enhance the returns on their other investment transactions 
B)  to profit off of their ability to execute trades at the right time 
C)  to profit off of their market making services 
D)  to provide services to enhance the overall attractiveness of their product line 
E)  none of the above

Question 17

An effective risk management system requires that the risk manager be independent of the derivatives traders.

Accepted Answer

A) True 
 B)False

Question 18

"Independent risk management" means which of the following?

Accepted Answer

A)  that risk management of a firm is independent of its overall corporate policy decisions 
B)  that the risk management function is provided by an outside consulting firm 
C)  that the risk manager cannot be influenced by the traders 
D)  that the risk manager is independent of the firm's senior managers 
E)  none of the above 
A)  that risk management of a firm is independent of its overall corporate policy decisions 
B)  that the risk management function is provided by an outside consulting firm 
C)  that the risk manager cannot be influenced by the traders 
D)  that the risk manager is independent of the firm's senior managers 
E)  none of the above

Question 19

Under FAS 133 executive stock options must be accounted for as short call options.

Accepted Answer

A) True 
 B)False

Question 20

End users are all of the following types of organizations except?

Accepted Answer

A)  investment funds 
B)  non-financial corporations 
C)  governments 
D)  financial institutions 
E)  none of the above 
A)  investment funds 
B)  non-financial corporations 
C)  governments 
D)  financial institutions 
E)  none of the above

The front office refers to

Transactions that do not qualify as hedges must be accounting for as speculation and marked to market each period.

Responsibilities of senior management include all of the following except

Effective risk management requires that the front office clerical operations be separated from the back office trading operations.

Which of the following organizations recommends best practices for the investment management industry?

Barings lost $1.2 billion because of what?

Which of the following methods is not permitted to satisfy the SEC's requirements for disclosure of derivatives activity?

Hedge accounting is which of the following?

End users differ from dealers in that the latter engage in risk management transactions for the purpose of earning a profit off the spread between their buying and selling prices, while the former enter into transactions to manage specific risks.

Enterprise risk management is a process in which a firm controls all of its risks in a centralized, integrated manner.

Hedge accounting, based on FAS 133, addresses all of the following except

A company's auditors are not typically trained to serve in a risk management capacity.

A risk management system that controls risk within a single department is considered to be centralized.

What is the primary activity of a firm's front office?

In a derivatives operations, back office personnel are in charge of front office personnel.

Derivatives dealers primarily conduct derivatives transactions for which of the following reasons?

An effective risk management system requires that the risk manager be independent of the derivatives traders.

"Independent risk management" means which of the following?

Under FAS 133 executive stock options must be accounted for as short call options.

End users are all of the following types of organizations except?

Introduction

Structure of Options Markets

Principles of Option Pricing

Option Pricing Models: The Binomial Model

Option Pricing Models: The Black-Scholes-Merton Model

Basic Option Strategies

Advanced Option Strategies

Structure of Forward and Futures Markets

Principles of Pricing Forwards, Futures and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Appplications

Filters

Exam 16: Managing Risk in an Organization

The front office refers to

Transactions that do not qualify as hedges must be accounting for as speculation and marked to market each period.

Responsibilities of senior management include all of the following except

Effective risk management requires that the front office clerical operations be separated from the back office trading operations.

Which of the following organizations recommends best practices for the investment management industry?

Barings lost $1.2 billion because of what?

Which of the following methods is not permitted to satisfy the SEC's requirements for disclosure of derivatives activity?

Hedge accounting is which of the following?

End users differ from dealers in that the latter engage in risk management transactions for the purpose of earning a profit off the spread between their buying and selling prices, while the former enter into transactions to manage specific risks.

Enterprise risk management is a process in which a firm controls all of its risks in a centralized, integrated manner.

Hedge accounting, based on FAS 133, addresses all of the following except

A company's auditors are not typically trained to serve in a risk management capacity.

A risk management system that controls risk within a single department is considered to be centralized.

What is the primary activity of a firm's front office?

In a derivatives operations, back office personnel are in charge of front office personnel.

Derivatives dealers primarily conduct derivatives transactions for which of the following reasons?

An effective risk management system requires that the risk manager be independent of the derivatives traders.

"Independent risk management" means which of the following?

Under FAS 133 executive stock options must be accounted for as short call options.

End users are all of the following types of organizations except?

Introduction

Structure of Options Markets

Principles of Option Pricing

Option Pricing Models: The Binomial Model

Option Pricing Models: The Black-Scholes-Merton Model

Basic Option Strategies

Advanced Option Strategies

Structure of Forward and Futures Markets

Principles of Pricing Forwards, Futures and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Appplications

Filters