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Interest rate swaps are:
Interest rate swaps are:A . Exchange traded derivative contracts that allow banks to take positions in future interest rates.B . 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.C . Exchange traded derivative contracts that allow banks...
For a bank a 1-year VaR of USD 10 million at 95% confidence level means that:
For a bank a 1-year VaR of USD 10 million at 95% confidence level means that:A . There is a 5% chance that the bank would lose less than USD 10 million in a year.B . There is a 5% chance that the bank would lose more than USD 10...
Which of the following assets on the bank's balance sheet has greatest endogenous liquidity risk?
Which of the following assets on the bank's balance sheet has greatest endogenous liquidity risk?A . A 2-year U.S treasury bondB . A 1-week corporate loan with a AAA rated companyC . A 10-year U.S treasury bondD . A 3-year subprime mortgageView AnswerAnswer: D Explanation: Endogenous liquidity risk refers to...
A credit associate extending a loan to an obligor suspects that the obligor may change his behavior after the loan has been originated. The obligor in this case may use the loan proceeds for purposes not sanctioned by the lender, thereby increasing the risk of default. Hence, the credit associate must estimate the probability of default based on the assumptions about the applicability of the following tendency to this lending situation:
A credit associate extending a loan to an obligor suspects that the obligor may change his behavior after the loan has been originated. The obligor in this case may use the loan proceeds for purposes not sanctioned by the lender, thereby increasing the risk of default. Hence, the credit associate...
What is the portfolio VaR?
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?A . $1 millionB . $0.7 millionC ....
What interest rate should Alpha Bank charge on the no-payment loan to Delta Industrial Machinery Corporation?
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...
Which one of the following four trading styles is she likely to use?
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?A . Technical tradingB . Contrarian tradingC . Black box tradingD . Market timing tradingView AnswerAnswer: D Explanation: Market...
Which one of the following four statements about equity indices is INCORRECT?
Which one of the following four statements about equity indices is INCORRECT?A . Equity indices are numerical calculations that reflect the performance of hypothetical equity portfolios.B . Equity indices do not trade in cash form, rather, they are meant to track the overall performance of an equity market.C . Capitalization-weighted...
Which of the following statements defines Value-at-risk (VaR)?
Which of the following statements defines Value-at-risk (VaR)?A . VaR is the worst possible loss on a financial instrument or a portfolio of financial instruments over a given time period.B . VaR is the minimum likely loss on a financial instrument or a portfolio of financial instruments with a given...
In hedging transactions, derivatives typically have the following advantages over cash instruments:
In hedging transactions, derivatives typically have the following advantages over cash instruments: I. Lower credit risk II. Lower funding requirements III. Lower dealing costs IV. Lower capital chargesA . I, IIB . I, IIIC . II, IVD . I, II, III, IVView AnswerAnswer: D Explanation: Derivatives have several advantages over...
