Question 1

Which of the following is not a method for computing Value at Risk?

Accepted Answer

A) Analytical method 
B) Variance-covariance method 
C) Comprehensive method 
D) Historical method 
E) Delta normal method 
A) Analytical method 
B) Variance-covariance method 
C) Comprehensive method 
D) Historical method 
E) Delta normal method C

Question 2

Market risk is which of the following

Accepted Answer

A) the risk associated with failing to properly record market transactions 
B) the risk that a dealer will lose market share to a competing dealer 
C) the risk associated with movements in such factors as interest rates and exchange rates 
D) the risk of the government declaring a transaction illegal 
E) none of the above 
A) the risk associated with failing to properly record market transactions 
B) the risk that a dealer will lose market share to a competing dealer 
C) the risk associated with movements in such factors as interest rates and exchange rates 
D) the risk of the government declaring a transaction illegal 
E) none of the above C

Question 3

The analytical (variance-covariance)method of estimating Value at Risk requires the assumption of a normal distribution.

Accepted Answer

A) True 
 B)False  True

Question 4

18.Credit derivatives are derivatives that are insured against credit losses.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following methods is not used to reduce credit risk?

Accepted Answer

A) delta-gamma-vega hedging 
B) collateral 
C) marking to market 
D) limiting the amount of business you do with a party 
E) none of the above 
A) delta-gamma-vega hedging 
B) collateral 
C) marking to market 
D) limiting the amount of business you do with a party 
E) none of the above

Question 6

Which of the following is approximately the Value at Risk at 5 percent of a portfolio of $10 million of asset A,whose expected return is 15 percent and volatility is 35 percent,and $15 million of asset B,whose expected return is 21 percent and volatility is 30 percent,where the correlation between the two assets is 0.2.

Accepted Answer

A) $5.6 million 
B) $10 million 
C) $15 million 
D) $1.25 million 
E) none of the above 
A) $5.6 million 
B) $10 million 
C) $15 million 
D) $1.25 million 
E) none of the above

Question 7

A dealer who engages in derivatives transactions with customers of low credit quality will offer a less attractive rate.

Accepted Answer

A) True 
 B)False

Question 8

A CDS premium is paid by the CDS seller to the CDS buyer to transfer the credit risk.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following forms of hedging requires the use of options?

Accepted Answer

A) delta hedging 
B) vega hedging 
C) gamma hedging 
D) credit risk hedging 
E) none of the above 
A) delta hedging 
B) vega hedging 
C) gamma hedging 
D) credit risk hedging 
E) none of the above

Question 10

Which of the following are types of risks faced by a derivatives dealer?

Accepted Answer

A) tax risk 
B) operational risk 
C) accounting risk 
D) legal risk 
E) none of the above 
A) tax risk 
B) operational risk 
C) accounting risk 
D) legal risk 
E) none of the above

Question 11

Model risk can occur when the wrong pricing models are used.

Accepted Answer

A) True 
 B)False

Question 12

The historical method of estimating Value at Risk uses the performance of the portfolio over the last ten years.

Accepted Answer

A) True 
 B)False

Question 13

Each of the following is a benefit of practicing risk management by companies except

Accepted Answer

A) companies can manage risk better than their shareholders 
B) risk management can avoid bankruptcy costs 
C) risk management can lower taxes 
D) risk management can increase employment opportunities 
E) risk management can help prevent companies from passing up valuable investment opportunities 
A) companies can manage risk better than their shareholders 
B) risk management can avoid bankruptcy costs 
C) risk management can lower taxes 
D) risk management can increase employment opportunities 
E) risk management can help prevent companies from passing up valuable investment opportunities

Question 14

Credit risk is the uncertainty of a firm's value or cash flow that is associated with movements in an underlying source of risk.

Accepted Answer

A) True 
 B)False

Question 15

The equity of a company with leverage is a put option on the assets.

Accepted Answer

A) True 
 B)False

Question 16

Conditional Value at Risk is the expected loss,given that a loss occurs.

Accepted Answer

A) True 
 B)False

Question 17

Risk management encompasses all of the following except

Accepted Answer

A) determining a firm's actual level of risk 
B) determining a firm's desired level of risk 
C) setting policies and procedures 
D) monitoring your position after-the-fact 
E) none of the above 
A) determining a firm's actual level of risk 
B) determining a firm's desired level of risk 
C) setting policies and procedures 
D) monitoring your position after-the-fact 
E) none of the above

Question 18

A total return swap allows substitution of the total return on a bond for the total return on a loan of comparable maturity.

Accepted Answer

A) True 
 B)False

Question 19

Companies can benefit from risk management if their incomes fluctuate across different tax brackets.

Accepted Answer

A) True 
 B)False

Question 20

Find the number of Eurodollar futures each having a delta of -$25 that would delta-hedge a portfolio of a long position in swaps with a delta of $5,000 and a short position in a put option with a delta of -$2,300.

Accepted Answer

A) long 292 contracts 
B) short 108 contracts 
C) short 292 contracts 
D) long 200 contracts 
E) long 108 contracts 
A) long 292 contracts 
B) short 108 contracts 
C) short 292 contracts 
D) long 200 contracts 
E) long 108 contracts

Which of the following is not a method for computing Value at Risk?

Market risk is which of the following

The analytical (variance-covariance)method of estimating Value at Risk requires the assumption of a normal distribution.

18.Credit derivatives are derivatives that are insured against credit losses.

Which of the following methods is not used to reduce credit risk?

A dealer who engages in derivatives transactions with customers of low credit quality will offer a less attractive rate.

A CDS premium is paid by the CDS seller to the CDS buyer to transfer the credit risk.

Which of the following forms of hedging requires the use of options?

Which of the following are types of risks faced by a derivatives dealer?

Model risk can occur when the wrong pricing models are used.

The historical method of estimating Value at Risk uses the performance of the portfolio over the last ten years.

Each of the following is a benefit of practicing risk management by companies except

Credit risk is the uncertainty of a firm's value or cash flow that is associated with movements in an underlying source of risk.

The equity of a company with leverage is a put option on the assets.

Conditional Value at Risk is the expected loss,given that a loss occurs.

Risk management encompasses all of the following except

A total return swap allows substitution of the total return on a bond for the total return on a loan of comparable maturity.

Companies can benefit from risk management if their incomes fluctuate across different tax brackets.

Find the number of Eurodollar futures each having a delta of -$25 that would delta-hedge a portfolio of a long position in swaps with a delta of $5,000 and a short position in a put option with a delta of -$2,300.

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

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

Managing Risk in an Organization

Filters

Exam 14: Financial Risk Management Techniques and Appplications

Which of the following is not a method for computing Value at Risk?

Market risk is which of the following

The analytical (variance-covariance)method of estimating Value at Risk requires the assumption of a normal distribution.

18.Credit derivatives are derivatives that are insured against credit losses.

Which of the following methods is not used to reduce credit risk?

A dealer who engages in derivatives transactions with customers of low credit quality will offer a less attractive rate.

A CDS premium is paid by the CDS seller to the CDS buyer to transfer the credit risk.

Which of the following forms of hedging requires the use of options?

Which of the following are types of risks faced by a derivatives dealer?

Model risk can occur when the wrong pricing models are used.

The historical method of estimating Value at Risk uses the performance of the portfolio over the last ten years.

Each of the following is a benefit of practicing risk management by companies except

Credit risk is the uncertainty of a firm's value or cash flow that is associated with movements in an underlying source of risk.

The equity of a company with leverage is a put option on the assets.

Conditional Value at Risk is the expected loss,given that a loss occurs.

Risk management encompasses all of the following except

A total return swap allows substitution of the total return on a bond for the total return on a loan of comparable maturity.

Companies can benefit from risk management if their incomes fluctuate across different tax brackets.

Find the number of Eurodollar futures each having a delta of -$25 that would delta-hedge a portfolio of a long position in swaps with a delta of $5,000 and a short position in a put option with a delta of -$2,300.

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

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

Managing Risk in an Organization

Filters