EMT Practice Test

1. Question Content...

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Question1: 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.

Question2: Which one of the four following statements describes a specific characteristic of risk and control self-assessments (RCSA) which distinguishes it from both control assessments and risk and control assessments?

Question3: PV01 is a method of describing interest rate risk. Which one of the following is a specific weakness of PV01?

Question4: Foreign exchange rates are determined by various factors. Considering the drivers of exchange rates, which one of the following changes would most likely strengthen the value of the USD against other foreign currencies?

Question5: A proprietary trading desk for a large bank hedges an Arab light OTC forward position with Brent crude oil forwards. The trading desk benefits from using the most liquid OTC market to hedge, the market for the Brent crude, but hedging its using the Brent contract, exposes itself to the following type of risk:

Question6: Which one of the following four statements regarding floating rate bonds is incorrect?

Question7: What does a bank normally use to cover expected credit losses?

Question8: 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?

Question9: To estimate the price of gold forwards, an investment analyst focuses on the cost of holding physical gold (bullion) and the cost of shorting the same. Given that physical gold spot price is $1,000, the annual risk-free rate is 5%, and the gold lease rate equals 2% annually, the analyst's best estimate of the gold forward price to equal

Question10: A bank has a large number of auto loans and would prefer to sell them to raise cash for more funding.
However, selling individual auto loans is difficult. What could the bank do?

Question11: Which one of the following four variables of the Black-Scholes model is typically NOT known at a point in time?

Question12: The market risk manager of SigmaBank is concerned with the value of the assets in the bank's trading book.
Which one of the four following positions would most likely be not included in that book?

Question13: Which one of the four following activities is NOT a component of the daily VaR computing process?

Question14: Which one of the following four option types has two strike prices?

Question15: Asset and liability management is typically concerned with all of the following activities:
I. Maintaining the desired liquidity structure of the bank.
II. Managing the factors affecting the structure and composition of a bank's balance sheet.
III. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer price.
IV. Focusing on the circumstances impacting the stability of income the bank generates over time.

Question16: Which one of the following four options is NOT a typical component of a currency swap?

Question17: A bank customer can use either a plain vanilla option or an option contract with volumetric flexibility to reduce the following risks:
I). Market Risk
II). Basis Risk
III). Operational Risk

Question18: Under Basel III, the Comprehensive Risk Measure is an incremental charge for what kind of trading portfolio?

Question19: Which of the following reports have been suggested by the FDIC that banks should produce in addition to the usual probabilistic analysis and stress tests in order to gauge liquidity issues?
I. Cash flow gaps
II. Funding availability
III. Critical assumptions used in credit projections

Question20: James Johnson bought a coupon bond yielding 4.7% for $1,000. Assuming that the price drops to $976 when yield increases to 4.71%, what is the PVBP of the bond.

Question21: The retail banking business of BankGamma has an expected P & L of $50 million and a VaR of $100 million.
The bank seeks to diversify its revenue, and is considering the opportunity to acquire a credit card business with an expected P & L of $50 million and a VaR of $150 million. What will be the overall RAROC if the bank acquires the new business?

Question22: To estimate the forward price of oil, a commodity trader would most likely use the following pricing relationship:

Question23: BetaFin, a financial services firm, does not have retail branches, but has fixed income, equity, and asset management divisions. Which one of the four following risk and control self-assessment (RCSA) methods fits the firm's operational risk framework the best?

Question24: Bank Muri has $4 million in cash and $5 million in loans coming due tomorrow with an expected default rate of 1%. The proceeds will be deposited overnight. The bank owes $ 9 million on a securities purchase that settles in two days and pays off $8 million in commercial paper in three days that is not expected to renew. On day 2, $1 million in loans is coming in with an expected default rate of 1% and on day 3, $2 million in loans is coming in with expected default rate of 2%. How much should the bank plan to raise in order to avoid liquidity problems?

Question25: Bank G has a 1-year VaR of USD 20 million at 99% confidence level while bank H has a 1-year VaR of USD
10 million at 95% confidence level. Which bank is in a more risky position as measured by VaR?

Question26: While contractually, depositors are not required to keep liquid funds on deposit for very long, in fact they tend to leave their deposits for longer periods of time, even if interest rates rise and the bank does not raise its deposit interest rate. What does a bank consider these deposits to be?

Question27: Which statements correctly describe the features of using subscription databases for operational loss data analysis?
Subscription databases
I. Provide central data repositories and benchmarking services to their members.
II. Can provide insight into whether the losses in a firm reflect the usual losses in their industry.
III. Assist with mapping the events to the appropriate business lines, risk categories and causes.
IV. Reflect only events that are interesting to the press and are reported in the press.

Question28: Which of the following statements represents a methodological difference between variance-covariance and full revaluation methods?

Question29: Mega Bank holds a $250 million mortgage loan portfolio, which reprices every 5 years at LIBOR + 10%. The bank also has $150 million in deposits that reprices every month at LIBOR + 3%. What is the amount of Mega Bank's rate sensitive assets?

Question30: Under the Basel II Accord, when using the Basic Indicator Approach to calculate its operational risk capital, a bank multiplies how many years of gross income by what percentage?

Question31: Which one of the following four statements correctly defines credit risk?

Question32: Which one of the following financial instruments is subject to implied volatility price risk?

Question33: Which one of the following statements is an advantage of using implied volatility as an input when calculating VaR?

Question34: 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.

Question35: The exercise for an American type option prior to expiration day is virtually certain in the following case:

Question36: After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ risk on the residual pieces of the credit portfolio, and as a result it ___ return on equity for the bank.

Question37: Bank Sigma has an opportunity to do a securitization deal for a credit card company, but has to retain a portion of the residual risk of the deal with an estimated VaR of $8 MM. Its fees for the deal are $2 MM, and the short-term financing costs are $600,000. What would be the RAROC for this transaction?

Question38: Bank Alpha is making a decision about lending 10-year loans in a sector that is fairly illiquid and is looking at various options to fund the loans. Which of the following options to fund the loans exhibits the most exogenous liquidity risk?

Question39: Why is stress testing a valuable part of credit risk assessment?

Question40: The probability of default on a bond is 3%, and in the case of default, investors expect to lose 70% of their investment. The bond's risk premium is 1.9%. The expected loss and the credit spread of the bond are, respectively:

Question41: BIS Principles for Sound Liquidity Risk Management and Supervision seek to raise standards in which of the following areas?
I. Aligning the risk-taking incentives of individual business units with their liquidity risk exposures.
II. Management of intraday liquidity risks and collateral positions.
III. Public disclosures of a bank's liquidity risk profile and management.
IV. Maintenance of sufficient regulatory capital to survive protracted periods of liquidity stress.

Question42: 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.

Question43: To estimate the interest charges on the loan, an analyst should use one of the following four formulas:

Question44: Which one of the following four models is typically used to grade the obligations of small- and medium-size enterprises?

Question45: A credit risk analyst is evaluating factors that quantify credit risk exposures. The risk that the borrower would fail to make full and timely repayments of its financial obligations over a given time horizon typically refers to:

Question46: Which of the following bank events could stress the bank's liquidity position?
I. Obligations to fund assets like mortgages
II. Unusually large depositor withdrawals
III. Counterparty collateral calls
IV. Nonperforming assets

Question47: In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the entire trading day. Which of the following factors would most likely affect foreign exchange option values?
I. Change in the value of the underlying
II. Change in the perception of future volatility
III. Change in interest rates
IV. Passage of time

Question48: In early March, an energy trader takes a long position in natural gas futures for delivery in June, and hedges this exposure by taking a position in futures for July delivery. These trades were executed on the expectation that over time, the relative prices of the June and July contracts will come into alignment, the movement in these two contracts will largely mirror each other, and as a result of this, the net exposure is minimized and the position is protected against absolute price movements. However, if the two relative prices do not come into alignment with each other due to the scarcity of any of the two traded contracts in the futures market, the trader is likely to become exposed to the

Question49: To quantify the aggregate average loss for the credi t subportfolios, a credit portfolio manager should use the following metric:

Question50: A large number of traders decide to follow the same trading strategy and sell a substantial portion of their physical gold holdings on the markets. The positions held by the traders are an example of what?

Question51: Which one of the following four mathematical option pricing models is used most widely for pricing European options?

Question52: Which one of the following is an advantage of using a daily decay factor when forecasting tomorrow's P&L?

Question53: By lowering the spread on lower credit quality borrowers, the bank will typically achieve all of the following outcomes EXCEPT:

Question54: 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.

Question55: Which of the following statements describes a bank's reasons to set risk limits?
I. To control and minimize a bank's current risk exposure.
II. To predict future risks.
III. To allocate risks to business units.
IV. To keep risk within tolerance levels.

Question56: Short-selling is typically associated with the following risks:
I. Potential for extreme losses
II. Risk associated with the availability of shares to borrow
III. Market behavior risk
IV. Liquidity risk

Question57: Which of the following attributes of duration gap model typically cause criticism?
I. Basis risk
II. Errors in the linear model
III. Costs of immunization
IV. Constant nature of calculation

Question58: The mark-to-market process includes which one of the following activities?

Question59: Over a long period of time DeltaBank has amassed a large equity option position. Which of the following risks should be considered in this transaction?
I. Counterparty risk on long OTC option positions
II. Counterparty risk on short OTC option positions
III. Counterparty risk on long exchange-traded option positions
IV. Counterparty risk on short exchange-traded option positions

Question60: Which of the following statements defines Value-at-risk (VaR)?

Question61: What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?

Question62: Which one of the following four statements about market risk is correct? Market risk is

Question63: Which of the following statements regarding CDO-squared is correct?
I. CDO-squared use other CDOs and CMOs as collateral.
II. Risk assessment of CDO-squared is almost impossible due to their complexity.
III. CDO-squared have lower credit risk than CMOs but higher than CDOs.

Question64: DeltaFin wants to develop a control scoring method for its RCSA program. Which of the following statements regarding scoring methods are correct?
I. DeltaFin can develop a control scoring method that assesses both the design and the performance of the control.
II. DeltaFin can combine the design and performance scores for each control to produce an overall control effectiveness score.
III. DeltaFin can use the control performance scores to compute an overall risk severity score.
IV. DeltaFin can determine its own appropriate control scoring method.

Question65: Which one of the following activities is carried out by the back office?

Question66: To hedge equity exposure without buying or selling shares of stock or otherwise rebalancing the portfolio, a risk manager could initiate

Question67: An associate from the finance group has been identified as an operational risk coordinator (ORC) for her department. To fulfill her ORC responsibilities the associate will need to:
I. Provide main communication contact with operational risk department
II. Provide main reporting contact with audit department
III. Coordinate collection of key risk indicators in her area
IV. Coordinate training and awareness activities in her area

Question68: Which one of the following areas does not typically report into a central operational risk function?

Question69: Which of the following attributes are typical for early models of statistical credit analysis?

Question70: Which one of the following four statements does identify correctly the relationship between the value of an option and perceived exchange rate volatility?

Question71: James Arthur is a customer of a bank who has taken a floating rate loan from the bank. He is concerned that the rates may rise in the future increasing his payment amount. Which of the following instruments should he buy to hedge against the rise in interest rates?

Question72: Which one of the following four alternatives lists the three most widely traded currencies on the global foreign exchange market, as of April 2007, in the decreasing order of market share? EUR is the abbreviation of the European euro, JPY is for the Japanese yen, and USD is for the United States dollar, respectively.

Question73: Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's expected loss be? What is the expected loss of this loan?

Question74: What does Pillar 2 of the Basel II Accord focus on?

Question75: According to Basel II what constitutes Tier 2 capital?

Question76: A risk manager is analyzing a call option on the GBP with a vega of 0.02. When the perceived future volatility increases by 1%, the call option

Question77: Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment. Hence, the loss rate in this case will be

Question78: Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment. What interest rate should Alpha Bank charge on the no-payment loan to Delta Industrial Machinery Corporation?

Question79: 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.

Question80: 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?

Question81: Which one of the following four statements regarding commodity derivative risks is INCORRECT?

Question82: Which one of the following four statements regarding the basic Net Interest Income model is INCORRECT?

Question83: Securitization is a process by which banks:

Question84: Which one of the following four statements on factors affecting the value of options is correct?

Question85: Which one of the four following statements regarding minimum loss data standards is not correct?

Question86: A portfolio manager is interested in computing risk measures for his bond investment portfolio. Which of the following measures the sensitivity of duration to interest rates?

Question87: Changes to which one of the following four factors would typically not increase the cost of credit?

Question88: A corporate bond was trading with 2%probability of default and 60% loss given default. Due to the credit crisis the probability of default increased to 10% and the loss given default increased to 100%. Assuming that the risk premium remained the same how did the credit spread change?

Question89: What does correlation between two variables measure?

Question90: Under Basel III, what is divided by Total Exposure to calculate the bank's Leverage Ratio?

Question91: Which of the following risk types are historically associated with credit derivatives?
I. Documentation risk
II. Definition of credit events
III. Occurrence of credit events
IV. Enterprise risk

Question92: An asset and liability manager for a large financial institution has to recognize that retail products ___ include embedded options, which are often not rationally exercised, while wholesale products ___ carry penalties for repayment or include rights to terminate wholesale contracts on very different terms than are common in retail products.

Question93: Which of the following statements is a key difference between customer loans and interbank loans?

Question94: Which one of the following four exotic option types has another option as its underlying asset, and as a result of its construction is generally believed to be very difficult to model?

Question95: Modified duration of a bond measures:

Question96: Which one of the four following statements about drawdowns is correct?

Question97: Which one of the four following non-statistical risk measures are typically not used to quantify market risk?

Question98: According to the principles of the Basel II Accord, the implementation and relative weights of the elements of the operational risk framework depend on:
I. The culture of the financial institution
II. Regulatory drivers
III. Business drivers
IV. The bank's reporting currency

Question99: Which of the following statements about the interest rates and option prices is correct?

Question100: An asset-sensitive bank will have a ___ cumulative gap and will benefit from ___ interest rates.

Question101: By foreign exchange market convention, spot foreign exchange transactions are to be exchanged at the spot date based on the following settlement rule:

Question102: Which one of the following four statements about preferred shares is INCORRECT?

Question103: Which of the following statements about the interest rates and option prices is correct?

Question104: The Sarbanes-Oxley Act includes one of the following four requirements for financial institutions in the United States:

Question105: Gamma Bank has a significant number of retail customers and finds its balance sheet shape and structure difficult to manage. Which one of the following characteristics of a bank with wide retail operations is INCORRECT?

Question106: Which one of the following four statements regarding commodity exchanges is INCORRECT?

Question107: A risk manager is considering how to best quantify option price dynamics using mathematical option pricing models. Which of the following variables would most likely serve as an input in these models?
I. Implicit parameter estimate based on observed market prices
II. Estimates of sensitivity of option prices to parameter changes
III. Theoretical option determination based on assumptions

Question108: James Johnson bought a 3-year plain vanilla bond that has yield of 4.7% and 4% coupon paid annually, for
$87,139. Macauley's duration of the bond is 2.94 years. Rate volatility is 20% of the yield. The bond's annualized volatility is therefore:

Question109: Which of the following are typical properties of a statistical distribution of potential losses that a bank might sustain over a period of time?
I. The range of possible losses above the average loss is much greater than those below the average loss.
II. The loss that is most likely to occur is below the average loss.
III. The loss that is most likely to occur is above the average loss.

Question110: Which one of the following four examples would not be considered a typical source of market risk?

Question111: Mega Bank holds a $250 million mortgage loan portfolio, which reprices every 5 years at LIBOR + 10%. The bank also has $150 million in deposits that reprices every month at LIBOR + 3%. What is the amount of Mega Bank's rate sensitive liabilities?

Question112: James Johnson has a $1 million long position in ThetaGroup with a VaR of 0.3 million, and $1 million long position in VolgaCorp with a VaR of 0.4 million. The returns of the two companies have zero correlation.
What is the portfolio VaR?

Question113: Why do regulatory standards impose formulaic capital calculations for all of the banks activities?
I). If the banks use different models it is difficult for a regulator to compare results across banks.
II). By imposing standardized calculations regulators can make sure that banks are not missing key risks in their calculations.
III). By imposing standardized calculations regulators can make sure that banks do not use capital calculations to game the banking regulation system.

Question114: Bank Milo has $4 million in cash and $5 million in loans coming due tomorrow with an expected default rate of 1%. The proceeds will be deposited overnight. The bank owes $ 9 million on a securities purchase that settles in two days and pays off $8 million in commercial paper in three days that is not expected to renew. On what days does the bank face negative cumulative liquidity?

Question115: Which one of the following four statements regarding the analysis of recoveries in operational risk reporting is correct?

Question116: Which of the following assets on the bank's balance sheet has greatest endogenous liquidity risk?

Question117: The data available to estimate the statistical distribution of bank losses is difficult to assemble for which of the following reasons?
I. The needed data is vast in quantity.
II. The data requires bringing together significantly different measures of risk.
III. Some risks are difficult to quantify and hence the data might involve subjective elements.

Question118: When a credit risk manager analyzes default patterns in a specific neighborhood, she finds that defaults are increasing as the stigma of default evaporates, and more borrowers default. This phenomenon constitutes

Question119: Which of the following would a bank resort to as a "lender of last resort" in the event of an extreme liquidity crisis?

Question120: Which one of the four following statements about technology systems for managing operational risk event data is incorrect?

Question121: Which one of the following four exercise features is typical for the most exchange-traded equity options?

Question122: Which one of the following four statements presents a challenge of using external loss databases in the operational risk framework?

Question123: 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

Question124: From the bank's point of view, repricing the retail debt portfolio will introduce risks of fluctuations in:
I. Duration
II. Loss given default
III. Interest rates
IV. Bank spreads

Question125: Normally, commercial banking can be viewed as a fixed income carry trade since

Question126: Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions in banks?

Question127: Which one of the following inherent biases occurs in scenario analysis for operational risk?

Question128: An options trader for a large institutional investor takes a long equity option position. Which of the following risks need to be considered when taking this position?
I. All the risks of underlying equities
II. Perceived volatility changes
III. Future dividends yields
IV. Risk-free interest rates

Question129: For which risk type did the Basel I Accord introduce regulatory guidelines for capital requirements?

Question130: BetaFin has decided to use the hybrid RCSA approach because it believes that it fits its operational framework. Which of the following could be reasons to use the hybrid RCSA method?
I. BetaFin has previously created series of RCSA workshops, and the results of these workshops can be used to design the questionnaires.
II. BetaFin believes that using the questionnaire approach should be more useful.
III. BetaFin had used the questionnaire approach successfully for certain businesses and the workshop approach for others.
IV. BetaFin had already implemented a sophisticated RCSA IT-system.

Question131: Which one of the following four statements correctly describes an American call option?

Question132: The Basel II Accord's operational risk definition excludes all of the following items EXCEPT:

Question133: Using the definitions used by JPMorgan Chase in their annual report, which of the following exposure types would be considered as a non-trading risk exposure?
I. Short term equity investments
II. Loans held to maturity
III. Mortgage servicing rights
IV. Derivatives used to manage asset/liability exposure.

Question134: For two variables, which of the following is equal to the average product of the deviations from their respective means?

Question135: Of all the risk factors in loan pricing, which one of the following four choices is likely to be the least significant?

Question136: What is a difference between currency swaps and interest rate swaps?

Question137: 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

Question138: Which of the following statements about a bank's behavior regarding Risk Adjusted Return on Capital (RAROC) is correct?
I. A bank should always seek to maximize their overall RAROC.
II. A bank should consider investing in a business even with negative RAROC if it increases the RAROC of the bank as a whole.
III. A bank should minimize its overall RAROC by controlling the absolute and relative amount of risk of its businesses.
IV. A bank should maximize its RAROC by always investing in a new business that maximizes the RAROC for that business unit.

Question139: The technique of using interest rate swap positions to reduce the effect of the variability of interest rates on net interest income is known as:

Question140: 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.

Question141: Which of the following factors would typically increase the credit spread?
I. Increase in the probability of default of the issuer.
II. Decrease in risk premium.
III. Decrease in loss given default of the issuer.
IV. Increase in expected loss.

Question142: 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?

Question143: The pricing of credit default swaps is a function of all of the following EXCEPT:

Question144: A credit rating analyst wants to determine the expected duration of the default time for a new three-year loan, which has a 2% likelihood of defaulting in the first year, a 3% likelihood of defaulting in the second year, and a 5% likelihood of defaulting the third year. What is the expected duration for this three-year loan?

Question145: Which one of the following four regulatory drivers for operational risk management includes risk and control requirements for financial statements in the United States?

Question146: According to Basel II what constitutes Tier 3 capital?

Question147: A retail credit score of above 680 is generally considered to be "prime." The term "prime" means the borrower is what?

Question148: An asset manager just bought a coupon paying bond with principal value $100,000 for $87,000 with a current yield of 4.7%. He assumes that if the yields change to 5.7% the price of the bond would be $84,500. Based on this assumption what is the modified duration of the bond?

Question149: Interest rate swaps are:

Question150: When creating a model to estimate risk, it is important to recognize which one of the following?

Question151: Which one of the following statements correctly identifies risks in foreign exchange forwards?

Question152: 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?

Question153: Banks duration match their assets and liabilities to manage their interest risk in their banking book. Currently, the bank's assets and liabilities both have a duration of 10. To hedge against the risk of decreasing interest rates, the bank should
I. Increase the duration of the liabilities
II. Increase the duration of the assets
III. Decrease the duration of the liabilities
IV. Decrease the duration of the assets

Question154: Alpha Bank estimates that the annualized standard deviation of its portfolio returns equal 30%; The daily volatility of the portfolio is closest to which of the following?

Question155: When operating in a heavily traded currency, a commercial and retail bank's treasury is likely to focus on cover operations. Which one of the following four commercial and retails treasury's operations is known as a cover operation?

Question156: Unico Delta stock is trading at $20 per share, its annualized dividend yield is 5% and the 12-month LIBOR is
3%. Given these statistics, the 12-month futures contact will trade at:

Question157: What is generally true of the relationship between a bond's yield and it's time to maturity when the yield curve is upward sloping?

Question158: A customer of EtaBank, Alfred Fall, fell on the marble floors of the bank and sustained substantial injuries.
Subsequently, he won a personal injury claim of $50,000 against EtaBank. How should EtaBank's operational loss data event information database categorize this event?

Question159: How could a bank's hedging activities with futures contracts expose it to liquidity risk?

Question160: A financial analyst is trying to distinguish credit risk from market risk. A $100 loan collateralized with $200 in stock has limited ___, but an uncollateralized obligation issued by a large bank to pay an amount linked to the long-term performance of the Nikkei 225 Index that measures the performance of the leading Japanese stocks on the Tokyo Stock Exchange likely has more ___ than ___.

Question161: All of the following performance statistics typically benefit country's creditworthiness EXCEPT: