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Which of the following decisions need to be made as part of laying down a system for calculating VaR: I. The confidence level and horizon II. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation III. Whether the VaR is to be disclosed in the quarterly...

Which of the following are valid objectives of a reverse stress test: I. Ensure that a firm can survive for long enough after risks have materialized for it to either regain market confidence, restructure or be sold, or be closed down in an orderly manner, II. Discover the vulnerabilities of...

Which of the following are considered asset based credit enhancements? I. Collateral II. Credit default swaps III. Close out netting arrangements IV. Cash reservesA . II and IVB . I, II and IVC . I and IVD . I and IIIView AnswerAnswer: D Explanation: Credit enhancements come in two varieties:...

Calculate the 99% 1-day Value at Risk of a portfolio worth $10m with expected returns of 10% annually and volatility of 20%.A . 290218B . 2326000C . 126491D . 294218View AnswerAnswer: A Explanation: Be wary of questions asking you to calculate VaR where the mean or expected returns are different...

If the full notional value of a debt portfolio is $100m, its expected value in a year is $85m, and the worst value of the portfolio in one year's time at 99% confidence level is $60m, then what is the credit VaR?A . $40mB . $25mC . $60mD . $15mView...

Which of the following is a valid approach to determining the magnitude of a shock for a given risk factor as part of a historical stress testing exercise? I. Determine the maximum peak-to-trough change in the risk factor over the defined period of the historical event II. Determine the minimum...

If the duration of a bond yielding 10% is 6 years, the volatility of the underlying interest rates 5% per annum, what is the 10-day VaR at 99% confidence of a bond position comprising just this bond with a value of $10m? Assume there are 250 days in a year.A...

Which of the following credit risk models focuses on default alone and ignores credit migration when assessing credit risk?A . CreditPortfolio ViewB . The contingent claims approachC . The CreditMetrics approachD . The actuarial approachView AnswerAnswer: D Explanation: The correct answer is Choice 'd'. The following is a brief description...

Which of the following is closest to the description of a 'risk functional'?A . A risk functional is the distribution that models the severity of a riskB . A risk functional is a model distribution that is an approximation of the true loss distribution of a riskC . Risk functional...

Which of the following is not an approach proposed by the Basel II framework to compute operational risk capital?A . Basic indicator approachB . Factor based approachC . Standardized approachD . Advanced measurement approachView AnswerAnswer: B Explanation: Basel II proposes three approaches to compute operational risk capital - the basic...