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NEW QUESTION 146
Which one of the following four statements correctly defines a typical carry trade?
- A. A bank borrows funds in a high-interest currency and places the funds in a long-term low volatility
investment vehicle. - B. A bank borrows funds in a high-interest currency and invests the funds into high-yield emerging market
debt. - C. A bank borrows funds in a low-interest currency and places the funds on deposit in a high-interest
currency. - D. A bank borrows funds in a low-interest currency, accumulates reserves, and lends in another
low-interest currency.
Answer: C
NEW QUESTION 147
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.
- A. I and III
- B. II, III, and IV
- C. I and II
- D. III and IV
Answer: A
NEW QUESTION 148
The Treasury function of a bank typically manages all of the following components EXCEPT:
- A. Bank's capital
- B. Bank's assets and liabilities
- C. Bank's liquidity
- D. Bank's performance estimates
Answer: D
NEW QUESTION 149
Which of the following statements presents an advantage of using risk and control self-assessments (RCSA) in
the operational risk framework?
I. RCSA provides very accurate scoring of risks and controls due to its subjective nature.
II. RCSA program provides insight into risks that exist in a firm, but that may or may not have occurred
before.
III. RCSA program can produce biased but transparent operational risk reporting.
IV. RCSA program allows each department to take ownership of its own risks and controls.
- A. I and III
- B. II, III, and IV
- C. I, II and III
- D. II and IV
Answer: D
NEW QUESTION 150
A risk associate is trying to determine the required risk-adjusted rate of return on a stock using the Capital
Asset Pricing Model. Which of the following equations should she use to calculate the required return?
- A. Required return = (1-risk free return) + beta x market risk
- B. Required return = risk-free return + beta x market risk
- C. Required return = risk-free return + 1/beta x market risk
- D. Required return = risk-free return + beta x (1 - market risk)
Answer: B
NEW QUESTION 151
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?
- A. Day 2 only.
- B. Days 1, 2 and 3.
- C. Days 2 and 3.
- D. Day 3 only.
Answer: C
NEW QUESTION 152
Which one of the following four options is NOT a typical component of a currency swap?
- A. Periodic exchange of interest payments in different currencies
- B. A final currency exchange
- C. Denomination of the original notional amount into a foreign currency
- D. An initial currency exchange of the notional amount
Answer: C
NEW QUESTION 153
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?
- A. Compound options
- B. Spread options
- C. Binary options
- D. Chooser options
Answer: A
NEW QUESTION 154
For which one of the following four reasons do corporate customers use foreign exchange derivatives?
I. To lock in the current value of foreign-denominated receivables
II. To lock in the current value of foreign-denominated payables
III. To lock in the value of expected future foreign-denominated receivables
IV. To lock in the value of expected future foreign-denominated payables
- A. I and IV
- B. I, II, III, IV
- C. II and III
- D. II
Answer: B
NEW QUESTION 155
Which one of the following statements describes Macauley's duration?
- A. The percentage change in a bond price when the yields change by 1%.
- B. The weighted average life of the bond payments.
- C. The change in value of a bond when yields increase by 1 basis point.
- D. The present value of the future cash flows of a bond calculated at a yield equal to 1%.
Answer: B
NEW QUESTION 156
Which one of the following four statements does identify correctly the relationship between the value of an
option and perceived exchange rate volatility?
- A. Option values can only change due to the factors related to the demand for specific options
- B. As the perceived future foreign exchange volatility decreases, the value of all options increases.
- C. With increases in perceived future foreign exchange volatility, the value of all foreign exchange
- D. As the perceived future foreign exchange volatility increases, the value of all options increases.
Answer: D
NEW QUESTION 157
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.
- A. II and III
- B. II, III, and IV
- C. I, II and III
- D. I and II
Answer: A
NEW QUESTION 158
An organization's enterprise risk management framework defines its risk profile and typically reflects the
organization's
I. Market and credit risks
II. Operational and liquidity risks
III. Strategic and geopolitical risks
IV. Structural developments and industry position
- A. I, II, III
- B. I, II
- C. II, III
- D. I, IV
Answer: A
NEW QUESTION 159
To hedge a foreign exchange exposure on behalf of a client, a small regional bank seeks to enter into an
offsetting foreign exchange transaction. It cannot access the large and liquid interbank market open primarily
to larger banks. At which one of the following exchanges can the smaller bank trade the currency futures
contracts?
I. The Tokyo Futures Exchange
II. The Euronext-Liffe Exchange
III. The Chicago Mercantile Exchange
- A. III
- B. I, II, III
- C. II, III
- D. I
Answer: B
NEW QUESTION 160
Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a
foreign exchange option?
- A. Option exercise price
- B. Discrete future stock prices
- C. Underlying interest rates
- D. Underlying exchange rates
Answer: B
NEW QUESTION 161
Changes to which one of the following four factors would typically not increase the cost of credit?
- A. Higher return earned on alternative investments.
- B. Higher risk premium on a fixed income instrument.
- C. Increasing inflation rates in a country.
- D. Increase in consumption of goods and services.
Answer: B
NEW QUESTION 162
Which one of the following four global markets for financial assets or instruments is widely believed to be the
most liquid?
- A. Foreign exchange market.
- B. Commodities market
- C. Fixed income market
- D. Equity market.
Answer: A
NEW QUESTION 163
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?
- A. The option positions hedge the forward position by 100%.
- B. The option positions hedge the forward position by 50%.
- C. The option positions hedge the forward position by 75%.
- D. The options positions hedge the forward position by 25%.
Answer: B
NEW QUESTION 164
AlphaBank's management is evaluating how changes in its business environment could materially impact risk
categories. As a result, bank's management decides to implement the structure, which facilitates the discussion
in an integrative context, spanning market, credit, and operational risk factors, and encourages transparency
and communication between risk disciplines. Which one of the following four approaches should the
management choose to achieve this strategic goal?
- A. Enterprise risk management approach
- B. Taxonomy-based risk management approach
- C. Scenario-based risk management approach
- D. Regulatory risk management approach
Answer: A
NEW QUESTION 165
For two variables, which of the following is equal to the average product of the deviations from their
respective means?
- A. Covariance
- B. Kurtosis
- C. Correlation
- D. Standard deviation
Answer: A
NEW QUESTION 166
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?
- A. This event would not qualify as an operational risk event.
- B. This event would qualify as "Employment Practices and Workplace Safety".
- C. This event would qualify as "Legal Risk".
- D. This event would qualify as "Business Disruption and System Failures".
Answer: B
NEW QUESTION 167
Gamma Bank estimates its monthly portfolio volatility at 5%.The portfolio's annual volatility is closest to
which of the following?
- A. 30%
- B. 35%
- C. 17%
- D. 8%
Answer: C
NEW QUESTION 168
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. 50%
- C. 20%
- D. 500%
Answer: B
NEW QUESTION 169
Which one of the following four option types has two strike prices?
- A. American options
- B. Asian options
- C. Range options
- D. Shout options
Answer: D
NEW QUESTION 170
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
- A. I, II
- B. II, III
- C. I, IV
- D. II, III, IV
Answer: D
NEW QUESTION 171
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