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NEW QUESTION 118
Which of the following would a bank resort to as a "lender of last resort" in the event of an extreme liquidity
crisis?
- A. LIBOR markets
- B. Discount window
- C. U.S treasury markets
- D. Futures Markets
Answer: B
NEW QUESTION 119
To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a
credit portfolio manager should use the following metric:
- A. Expected loss
- B. Factor sensitivity
- C. Unexpected loss
- D. Credit VaR
Answer: A
NEW QUESTION 120
Jack Richardson wants to compute the 1-month VaR of a portfolio with a market value of USD 10 million,
with an average monthly return of 1% and average monthly standard deviation of 1.5%. What is the portfolio
VaR at 99% confidence level?
Probability Cumulative Normal distribution
0.90 1.282
0.91 1.341
0.92 1.405
0.93 1.476
0.94 1.555
0.95 1.645
0.96 1.751
0.97 1.881
0.98 2.054
0.99 2.326
- A. 246,750
- B. 232,600
- C. 164,500
- D. 348,900
Answer: D
NEW QUESTION 121
A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian
dollars and sell Brazilian reals. Alpha bank does not hold reals so it asks for a quote to buy Brazilian reals in
the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer and sells the real at
this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange
matched transaction. What is the impact of this transaction on the bank's risk profile?
- A. This transaction eliminates credit risk.
- B. This transaction eliminates market risk.
- C. This transaction eliminates operational risk.
- D. This transaction eliminates counterparty risk.
Answer: B
NEW QUESTION 122
By foreign exchange market convention, spot foreign exchange transactions are to be exchanged at the spot
date based on the following settlement rule:
- A. One-day rule
- B. Two-day rule
- C. Three-day rule
- D. Four-day rule
Answer: B
NEW QUESTION 123
Which one of the following four statements regarding commodity exchanges is INCORRECT?
- A. Customers rarely trade physical commodities with banks.
- B. Commodity markets are mot liquid than debt markets.
- C. Banks trade in OTC contracts primarily to serve clients and facilitate client hedging and lending.
- D. Banks have no natural direct exposure to commodities.
Answer: B
NEW QUESTION 124
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?
- A. 10%
- B. 500%
- C. 20%
- D. 50%
Answer: D
NEW QUESTION 125
What are the add-on losses faced by a bank that is going bankrupt?
I. The discount accepted by the bank for selling its assets in a fire sale.
II. The increased cost of funding liabilities in a financially distressed situation.
III. The reduction in the present value of future growth opportunities.
IV. Loss of goodwill and intangible assets.
- A. I, II, III, IV.
- B. I, II
- C. II, III, IV
- D. III, IV
Answer: A
NEW QUESTION 126
Which one of the following four global markets for financial assets or instruments is widely believed to be the
most liquid?
- A. Fixed income market
- B. Equity market.
- C. Commodities market
- D. Foreign exchange market.
Answer: D
NEW QUESTION 127
The Sarbanes-Oxley Act includes one of the following four requirements for financial institutions in the
United States:
- A. Capital allocation requirements
- B. Market discipline requirements
- C. Risk and control requirements
- D. Regulatory response to systemic risk requirements
Answer: C
NEW QUESTION 128
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.
- A. I, II
- B. II, III
- C. II
- D. I, II, III
Answer: A
NEW QUESTION 129
Returns on two assets show very strong positive linear relationship. Their correlation should be closest to
which of the following choices?
- A. 60%
- B. 45%
- C. 100%
- D. 15%
Answer: C
NEW QUESTION 130
Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading
strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should
Unico take to limit its risk exposure?
- A. A market-maker strategy that allows the traders to quote a buy and sell price to customers and other
banks and to trade at the relevant price on the sell side of the market. - B. A covering strategy that manages positions in the product by executing covering deals or hedging deal at
the discretion of the trading des. - C. A matched book strategy that allows the trading desk to match all customer positions immediately with
an equal and opposite position by trading internally or with another bank. - D. A passive hedging strategy that allows the traders to price transactions with customers and other banks,
at the relevant bid price on the market.
Answer: C
NEW QUESTION 131
Samuel Teng owns a portfolio of bonds and is trying to compute the convexity of his portfolio. Which of the
following choices equals the convexity of Samuel's portfolio?
- A. Minimum of the convexities of the component bonds
- B. Coupon-weighted average convexity of the component bonds
- C. Value-weighted average convexity of the component bonds
- D. Maximum of the convexities of the component bonds
Answer: C
NEW QUESTION 132
A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations. If these CDOs can
be used in a repo transaction at a 20% haircut, what is the maximum leverage factor for a transaction with the
CDOs?
- A. 0
- B. 1.5
- C. 1
- D. 0.8
Answer: A
NEW QUESTION 133
From a risk point of view, which of the following factors will generally lead to the fluctuation of equity values
with industry P/E levels and a company's individual earnings?
I. Sales
II. Cost management
III. Commercial success of the company
IV. Market sentiment
- A. II, IV
- B. I, II
- C. III, IV
- D. I, II, III
Answer: D
NEW QUESTION 134
Gamma Bank is operating in a highly volatile interest rate environment and wants to stabilize its net income
by shifting the sources of its earnings from interest rate sensitive sources to less interest rate sensitive sources.
All of the following strategies can help achieve this objective EXCEPT:
- A. Extend different types of credit
- B. Originate more floating interest rate loans
- C. Provide trust, asset management, and trading services to customers
- D. Charge bank fees for underwriting loans
Answer: B
NEW QUESTION 135
An endowment asset manager with a focus on long/short equity strategies is evaluating the risks of an equity
portfolio. Which of the following risk types does the asset manager need to consider when evaluating her
diversified equity portfolio?
I. Company-specific projected earnings and earnings risk
II. Aggregate earnings expectations
III. Market liquidity
IV. Individual asset volatility
- A. I, II, IV
- B. II, III
- C. I
- D. I, IV
Answer: B
NEW QUESTION 136
As an example of the balance sheet effect, if rates rise, Delta Bank can expect:
- A. Its fixed rate assets to drop in value, although that effect will be offset by a reduction in the value of its
fixed rate liabilities. - B. Its fixed rate assets to drop in value, while that effect will be amplified by a reduction in the value of its
fixed rate liabilities. - C. Its fixed rate assets to increase in value, although that effect will be offset by a reduction in the value of
its fixed rate liabilities. - D. Its fixed rate assets to increase in value, while that effect will be amplified by a reduction in the value of
its fixed rate liabilities.
Answer: A
NEW QUESTION 137
A portfolio consists of two floating rate bonds and one fixed rate bond.
Based on the information below, modified duration of this portfolio is
- A. 2.64
- B. 4.28
- C. 4.44
- D. 3.00
Answer: A
NEW QUESTION 138
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