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To maximize the interest income, Beta Insurance Company should invest in bonds with which of the following ratings?
Beta Insurance Company is only allowed to invest in investment grade bonds. To maximize the interest income, Beta Insurance Company should invest in bonds with which of the following ratings?A . AAAB . AAC . AD . BView AnswerAnswer: C Explanation: Beta Insurance Company, which can only invest in investment-grade...
Alpha Bank, a small bank,has a long position with larger BetaBank and has an identical short position with another larger bank GammaBank. Each large bank requires a 20% initial collateral to support the trade. As prices fluctuate in either direction, one large bank will require additional collateral from the small bank, while the risk of loss to the other large bank will increase.
Alpha Bank, a small bank,has a long position with larger BetaBank and has an identical short position with another larger bank GammaBank. Each large bank requires a 20% initial collateral to support the trade. As prices fluctuate in either direction, one large bank will require additional collateral from the small...
What is a common implicit assumption that is made when computing VaR using parametric methods?
What is a common implicit assumption that is made when computing VaR using parametric methods?A . The expected returns are constant, but the standard deviation changes over time.B . The standard deviations of returns are constant, but the mean changes over time.C . The mean of and the standard deviations...
The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential
The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential failure of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed, the principal and the contractual interest payments, would be called ___.A . Credit risk; market...
Which one of the following four approaches should the management choose to achieve this strategic goal?
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...
Which one of the following four statements regarding bank's exposure to credit and default risk is INCORRECT?
Which one of the following four statements regarding bank's exposure to credit and default risk is INCORRECT?A . The more the bank diversifies its credit portfolio, the better spread its credit risks become.B . In debt management, the value of any loan exposure will change typically in a fashion similar...
Adding which of the following bonds would minimize the credit risk of his portfolio?
James Johnson manages a bond portfolio with all investment grade bonds. Adding which of the following bonds would minimize the credit risk of his portfolio?A . AB . BC . CD . DView AnswerAnswer: A Explanation: Minimizing credit risk in a bond portfolio involves selecting bonds with the highest credit...
Which of the following statements about the option gamma is correct?
Which of the following statements about the option gamma is correct? I. 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...
Which one of the four following statements about Basis point values is correct?
Which one of the four following statements about Basis point values is correct? Basis point value:A . Is a widely used statistical tool used to measure market risk.B . Refers to the change in the value of a fixed income position for a very small change yields.C . Is a...
Which one of the following four exercise features is typical for the most exchange-traded equity options?
Which one of the following four exercise features is typical for the most exchange-traded equity options?A . Asian exercise featureB . American exercise featureC . European exercise featureD . A shout option exercise featureView AnswerAnswer: B Explanation: Most exchange-traded equity options in the U.S. typically have the American exercise feature....
