Test Online 2016-FRR Dumps Questions to Be Certified

Page 1 of 3

1. Which one of the following four statements correctly defines chooser options?

The owner of these options decides if the option is a call or put option only when a predetermined date is reached.

These options represent a variation of the plain vanilla option where the underlying asset is a basket of currencies.

These options pay an amount equal to the power of the value of the underlying asset above the strike price.

These options give the holder the right to exchange one asset for another.

2. John owns a bond portfolio worth $2 million with duration of 10.

What positions must he take to hedge this portfolio against a small parallel shifts in the term structure.

Long position worth $2 million with duration of 10.

Long position worth $20 million with duration of 1.

Short position worth $2 million with duration of 10.

Short position worth $20 million with duration of 1.

3. 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?

Interest rate risk and credit risk

Interest rate risk only

Credit Risk only

The bank does not incur any risk since the loan is not yet originated

4. Typically, which one of the following four option risk measures will be used to determine the number of options to use to hedge the underlying position?

Vega

Rho

Delta

Theta

5. 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:

10%

15%

25%

40%

6. Rising TED spread is typically a sign of increase in what type of risk among large banks?

I. Credit risk

II. Market risk

III. Liquidity risk

IV. Operational risk

I only

II only

I and IV

I, II, and III

7. Interest rate swaps are:

Exchange traded derivative contracts that allow banks to take positions in future interest rates.

OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without relying on long-term funding.

Exchange traded derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.

OTC derivative contracts that allow banks to take positions in series of future exchange rates.

8. To estimate the responsiveness of a particular equity portfolio to the overall market, a trader should use the portfolio's

Alpha

Beta

CVaR

VaR

9. Securitization is the process by which banks

I. Issue bonds where the payment of interest and repayment of principal on the bonds depends on the cash flow generated by a pool of bank assets.

II. Issue bonds where the bank has transferred its legal right to payment of interest and repayment of principal to bondholders.

III. Sell illiquid assets.

I, II

I, III

I, II, III

10. Which one of the following four statements regarding floating rate bonds is incorrect?

Floating rate bonds have coupon payments tied to floating interest rates or floating interest rate indexes.

Floating rate bonds typically have less price risk than fixed rate bonds.

Floating rate bonds are very sensitive to changes in interest rates.

Floating rate bonds only have a small degree of interest rate risk.

Page 2 of 3

11. To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a credit portfolio manager should use the following metric:

Credit VaR

Expected loss

Unexpected loss

Factor sensitivity

12. A risk manager analyzes a long position with a USD 10 million value. To hedge the portfolio, it seeks to use options that decrease JPY 0.50 in value for every JPY 1 increase in the long position. At first approximation, what is the overall exposure to USD depreciation?

His overall portfolio has the same exposure to USD as a portfolio that is long USD 5 million.

His overall portfolio has the same exposure to USD as a portfolio that is long USD 10 million.

His overall portfolio has the same exposure to USD as a portfolio that is short USD 5 million.

His overall portfolio has the same exposure to USD as a portfolio that is short USD 10 million.

13. Which of the following statements about parametric and nonparametric methods for calculating Value-at-risk is correct?

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

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

Both parametric and nonparametric methods assume returns are normally distributed.

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

14. When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no credit losses.

Symmetric; less

Symmetric; greater

Asymmetric; less

Asymmetric; greater

15. 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.

I and II

I and III

III and IV

II, III, and IV

16. A trader attempts to hold long positions when markets are rising and hold short positions when markets are falling.

Which one of the following four trading styles is she likely to use?

Technical trading

Contrarian trading

Black box trading

Market timing trading

17. On January 1, 2010 the TED (treasury-euro dollar) spread was 0.4%, and on January 31, 2010 the TED spread is 0.9%. As a risk manager, how would you interpret this change?

The decrease in the TED spread indicates a decrease in credit risk on interbank loans.

The decrease in the TED spread indicates an increase in credit risk on interbank loans.

Increase in interest rates on both interbank loans and T-bills.

Increase in credit risk on T-bills.

18. A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5% semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk manager of the bank is concerned about the sensitivity to interest rates.

Which of the following statements are true?

The price of the bond paying floating interest is more sensitive to interest rates than the bond paying fixed interest.

The price of the bond paying fixed interest is more sensitive to interest rates than the bond paying floating interest.

Both bond prices are equally sensitive to interest rates.

The given information is not enough to determine the sensitivity of the bond prices.

19. In the United States, during the second quarter of 2009, transactions in foreign exchange derivative contracts comprised approximately what proportion of all types of derivative transactions between financial institutions?

25%

43%

20. In the United States, Which one of the following four options represents the largest component of securitized debt?

Education loans

Credit card loans

Real estate loans

Lines of credit

Page 3 of 3

21. A large energy company has a recurring foreign currency demands, and seeks to use options with a pay-off based on the average price of the underlying asset on either a few specific chosen dates or all dates within a specific pricing window.

Which one of the following four option types would most likely meet these specific foreign currency demands?

American options

European options

Asian options

Chooser options

22. 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?

$500 million

$510 million

$508 million

$550 million

23. An options trader is assessing the aggregate risk of her currency options exposures. As an options buyer, she can potentially ___ lose more than the premium originally paid. As an option seller, however, she has a ___ risk on the contract and always receives a premium.

Never, unlimited

Sometimes, unlimited

Never, limited

Sometimes, limited

24. 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

I, IV

II, III

I, II, IV

25. 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?

Increase the duration of liabilities by 2 and increase the duration of assets by 1.

Increase the duration of liabilities by 2 and decrease the duration of assets by 1.

Decrease the duration of liabilities by 1 and increase the duration of assets by 1.

Decrease the duration of liabilities by 1 and decrease the duration of assets by 1.

26. 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?

10,000 shares of IBM worth $10,000,000.

$10,000,000 loan to IBM worth $9,800,000.

$10,000,000 bond issued by IBM worth $11,000,000.

300,000 options on IBM shares worth $10,000,000.

27. In additional to the commodity-specific risks, which of the following risks represent the main commodity derivative risks?

I. Basis

II. Term

III. Correlation

IV. Seasonality

I, II

II, III

I, IV

I, II, III, IV

[email protected]

Mon - Sat 9:00am - 6:00pm

Test Online 2016-FRR Dumps Questions to Be Certified

Related

Posts

About Us

EMAIL

Services

Opening Hours