NO.12 What is the objective of a bank’s risk management department?

NO.13 A risk manager has a long forward position of USD 1 million but the option portfolio decreases JPY 0.50 for every JPY 1 increase in his forward position. At first approximation, what is the overall result of the options positions?

NO.14 Which type of risk does a bank incur on loans that are in the “pipeline”, i.e loans that are in the process of
origination but not yet originated?

NO.15 Which of the following correctly identifies reasons for collecting internal operational risk event and loss
information?
I. Assessing the risk of specific areas of concern.
II. Evaluating risk events and outcomes.
III. Collecting data for capital modeling.
IV. Getting insight into risk events in other firms in the industry.

NO.16 What does correlation between two variables measure?

NO.17 Since most consumers of natural gas do not have the ability to store it, they contract with gas suppliers to receive a flow of natural gas equal to a specific number of MMBT’s per day (MMBT is millions of British Termal Units, the unit in which gas futures are quoted on the U.S. markets). To protect against price increases with a bank, the natural gas consumer, concerned with the average price over the course of the month, will use the following contracts:

NO.18 Which of the following statements explain how securitization makes the retail assets highly liquid and the balance sheet easier to manage?
I. By securitizing assets any lack of capital can be accommodated by selling the securitized bonds.
II. Any need to diversify credit risk can be achieved by selling bank’s own securitized bonds and buying other bonds that increase diversification.
III. Securitization could be used to promote hedging by using limited market instruments.

NO.19 Which of the following are among the main uses of risk reports?
I. Identification of exceptional situations that require managerial attention.
II. Display the relative risk among different trades.
III. Specify how RAROC will be maximized within the bank.
IV. Estimate the overall risk levels of the bank.

NO.20 To estimate the required risk-adjusted rate of return on a highly volatile energy stock, a risk associate
compiled the following statistics:
Risk-free rate = 5%
Beta = 2.5
Market Risk = 8%
Using the Capital Asset Pricing Model, she estimates the rate of return to be equal:

NO.21 Which one of the following four statements correctly defines an option’s delta?

NO.22 Banks duration match their assets and liabilities to manage their interest risk in their banking book. A bank has
$100 million in interest rate sensitive assets and $100 million in interest rate sensitive liabilities. Currently the
bank’s assets have a duration of 5 and its liabilities have a duration of 2. The asset-liability management
committee of the bank is in the process of duration-matching. Which of the following actions would best
match the durations?

NO.23 Bank Sigma takes a long position in the oil futures market that requires a 2% margin, i.e., the bank has to deposit 2% of the value of the contract with the broker. The futures contracts were priced at $50 per barrel (bbl) at inception, and rose by $5 to $55. The VaR on the position is estimated to be $10. What is the return on this transaction on a risk adjusted basis?

NO.24 What is it called when obligors default at the same time?

NO.25 Since most consumers of natural gas do not have the ability to store it, they contract with gas suppliers to
receive a flow of natural gas equal to a specific number of MMBT’s per day (MMBT is millions of British
Termal Units, the unit in which gas futures are quoted on the U.S. markets). To protect against price increases
with a bank, the natural gas consumer, concerned with the average price over the course of the month, will use
the following contracts:

NO.26 When considering the advantages of operational risk function owned by the Chief Compliance Officer in a
financial institution, an operational risk manager consultant suggests that this governance approach will have
all of the following advantages except:

NO.27 Which one of the following four statements regarding commodity derivative risks is INCORRECT?