QUESTION 108
US based Alpha Bank holds European corporate bonds and US inflation-indexed Treasury notes in its investment portfolio. This investment portfolio is not exposed to changes in which of the following?

QUESTION 109
Bank Omega is using futures contracts on a well capitalized exchange to hedge its market risk exposure.
Which of the following could be reasons that expose the bank to liquidity risk?
I. The bank may not be able to unwind the futures contracts before expiration.
II. Prices may move such that a loss results on the hedge.
III. Since futures require margins which are settled every day, the bank could find itself scrambling for funds.
IV. Exchange margin requirements could change unexpectedly.

QUESTION 110
US-based BetaBank have accumulated Japanese yen, Japanese government bonds, options on Japanese yen,
and positions in commodities that have a positive correlation with yen. Which one of the four following
non-statistical risk measures could be used to evaluate the BetaBank’s exposure to the Japanese economy?

QUESTION 111
ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies have an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank’s risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, the actual probability would be underestimated by:

QUESTION 112
Which of the following statements are reasons for mathematical valuation and risk assessment models to be misleading or inaccurate?
I. There could be missing factors in models.
II. The data used as input for the model could be bad or wrong.
III. Model results could be misinterpreted.
IV. There could be errors in the derivation of the model.

QUESTION 113
Which one of the following four statements correctly defines a non-exotic call option?

QUESTION 114
To protect the oranges harvest price level, a farmer needs to take a hedge position. Provided that he produces
the amount he hedged, which one of the following four strategies will allow the farmer to accomplish his goal?

QUESTION 115
Which one of the following four mathematical option pricing models is used most widely for pricing European
options?

QUESTION 116
James Johnson purchased a plain vanilla bond that has modified duration of 10 and convexity of 0.5. If yields increase by 1%, its modified duration is expected to

QUESTION 117
Bank Zilo has $2 million in cash and $10 million in loans coming due tomorrow with an expected default rate
of 1%. The proceeds will be deposited overnight. The bank owes $ 10 million on a securities purchase that
settles in two days and pays off $9 million in commercial paper in three days that is not expected to renew.
How much money should the bank plan to raise so as to avoid a liquidity problem?

QUESTION 118
Which of the following statements about endogenous and exogenous types of liquidity are accurate?
I. Endogenous liquidity is the liquidity inherent in the bank’s assets themselves.
II. Exogenous liquidity is the liquidity provided by the bank’s liquidity structure to fund its assets and maturing liabilities.
III. Exogenous liquidity is the non-contractual and contingent capital supplied by investors to support the bank in times of liquidity stress.
IV. Endogenous liquidity is the same as funding liquidity.

QUESTION 119
To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements:
I. Bonds
II. Marketable loans
III. Credit card loans

QUESTION 120
Which one of the following four statements does identify correctly the relationship between the value of an option and perceived exchange rate volatility?

QUESTION 121
Which one of the following four options correctly identifies the core difference between bonds and loans?

QUESTION 122
Which one of the following four options does NOT represent a benefit of compensating balances to the bank?

QUESTION 123
Which among the following are shortfalls of the static liquidity ladder model?
I. The static model gives a liquidity estimate only after the bank faces the liquidity problem.
II. The static model can only make projections over a few days.
III. The static model does not incorporate uncertainty in the analysis.

QUESTION 124
What is the role of market risk management function within a bank?
I. Control and minimize the risks the bank should take.
II. Establish a comprehensive market risk policy framework.
III. Define, approve and monitor risk limits.
IV. Perform stress tests and other qualitative risk assessments.

QUESTION 125
The operational risk policy should include:
I. The firm’s definition of risk
II. The governance of operational risk including who owns it, what it owns, and how issues should be escalated III. The main activities and elements that are managed by the operational risk function

QUESTION 126
Financial regulators in a European country are considering banning trading in highly complex derivative instruments that are not settled through a centralized clearinghouse. This ban can result in:
I. The value of the country’s currency dropping
II. Counterparties involved in trading of these derivative instruments failing to fulfill their obligations III. The business model relying on these instruments failing IV. Certain activities becoming illegal