Free 2016-FRR – Financial Risk and Regulation (FRR) Series Practice Test Question

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  I only
  

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  II and III
  

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  III and IV
  

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  II, III, and IV
  
  
  

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  Second derivative of the option value with respect to the volatility.
  
  II. Percentage change in option value per percentage change in the price of the underlying instrument.
  
  III. Second derivative of the value function with respect to the price of the underlying instrument.
  
  IV. Rate of change of the option delta with respect to changes in the underlying price.
  

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  Causal models
  

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  Historical frequency models
  

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  Credit scoring models
  

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  Credit rating models
  
  
  

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  There is a 5% chance that the bank would lose less than USD 10 million in a year.
  

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  There is a 5% chance that the bank would lose more than USD 10 million in a year.
  

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  There is a 5% chance that the worst loss would be USD 10 million in a year.
  

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  There is a 5% chance that the least loss would be USD 10 million in a year.
  
  
  

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  Parametric methods generally assume returns are normally distributed, and non-parametric methods make no assumptions about return distributions.
  

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  Parametric methods make no assumptions about return distributions, and non-parametric methods assume returns are normally distributed.
  

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  Both parametric and nonparametric methods assume returns are normally distributed.
  

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  Both parametric and nonparametric methods make no assumptions about return distributions.
  
  
  

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  Oil forward price = Expected future oil price ± Oil market risk premium
  

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  Oil forward price = Expected future oil price ± storage cost + Oil market risk premium

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  Oil forward price = Expected future oil price ± Oil storage cost + (1 + Oil market risk premium)
  

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  Oil forward price = Expected future oil price ± Oil storage cost + (1 - Oil market risk premium)
  
  
  

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  Overnight interbank markets
  

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  The 6-month LIBOR markets
  

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  The 1-year treasury markets
  

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  Foreign exchange markets
  
  
  

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  Risk and control requirements
  

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  Market discipline requirements
  

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  Capital allocation requirements
  

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  Regulatory response to systemic risk requirements
  
  
  

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  $2 million per year
  

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  $5 million per year
  

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  $9 million per year
  

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  $12 million per year
  
  
  

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  I, II
  

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  III
  

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  IV
  

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  I, II, IV
  
  
  

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  Reducing the average repricing time of its loans
  
  II. Increasing the average repricing time of its deposits
  
  III. Entering into interest rate swaps
  
  IV. Improving earnings capacity and increasing intermediated funds
  

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  Probability of default
  

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  Duration of default
  

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  Loss given default
  

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  Exposure at default
  
  
  

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  Option sensitivities
  

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  Net closed positions
  

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  Convexity
  

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  Basis point values
  
  
  

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  I and II
  

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  I and IV
  

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  II and III
  

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  I, II and III
  
  
  

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  Human errors
  
  II. Process failure
  
  III. Systems failure
  
  IV. Unexpected events
  

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  30%
  

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  40%
  

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  50%
  

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  60%
  
  
  

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  Aggressively courting of new business
  

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  Lower probability of default

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  Rapid growth
  

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  Higher losses in case of default
  
  
  

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  Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.
  

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  The exposure at default is variable due to fluctuations in swap valuations.
  

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  The exposure at default can be negatively correlated to probability of default.
  

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  Dynamic collateral provisions often increase counterparty risk considerably.