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Which of the following credit risk models relies upon theanalysis of credit rating migrations to assess credit risk?A . KMV's EDF based approachB . The CreditMetrics approachC . The actuarial approachD . The contingent claims approachView AnswerAnswer: B Explanation: The correct answer is Choice 'b'. The following is a brief...

Which of the following credit risk models relies upon theanalysis of credit rating migrations to assess credit risk?A . KMV's EDF based approachB . The CreditMetrics approachC . The actuarial approachD . The contingent claims approachView AnswerAnswer: B Explanation: The correct answer is Choice 'b'. The following is a brief...

What is the risk horizon period used for credit risk as generally used for economic capital calculations and as required by regulation?A . 1-dayB . 1 yearC . 10 yearsD . 10 daysView AnswerAnswer: B Explanation: The credit risk horizon for credit VaR is generally one year. Therefore Choice 'b'...

For creditrisk calculations, correlation between the asset values of two issuers is often proxied with:A . Credit migration matricesB . Transition probabilitiesC . Equity correlationsD . Default correlationsView AnswerAnswer: C Explanation: Asset returns are relevant for credit risk models where a default is related to the value of the assets...

Which of the following techniques is used to generate multivariate normal random numbers that are correlated?A . SimulationB . Markov processC . Cholesky decomposition of the correlation matrixD . Pseudo random number generatorView AnswerAnswer: C Explanation: A PRNG (pseudorandom number generators of the kind included in statistical packages and Excel)...

For a given notional amount, which of the following carries the greatest counterparty exposure (assuming the same counterparty credit rating for each):A . A futures contract on an equity indexB . A one year certificate of depositC . A one year forward foreign exchange contractD . A one year interest...

If the cumulative default probabilities of default for years 1 and 2 for a portfolio of credit risky assets is 5% and 15% respectively, what is the marginal probability of default in year 2 alone?A . 15.79%B . 10.53%C . 10.00%D . 11.76%View AnswerAnswer: B Explanation: One way to think...

An error by a third party service provider results in a loss to a client that the bank has to make up. Such as loss would be categorized per Basel IIoperational risk categories as:A . Execution delivery and process managementB . Outsourcing lossC . Business disruption and process failureD ....

If the default hazard rate for a company is 10%, and the spread on its bondsover the risk free rate is 800 bps, what is the expected recovery rate?A . 40.00%B . 20.00%C . 8.00%D . 0.00%View AnswerAnswer: B Explanation: The recovery rate, the default hazard rate (also called the...

Which of the following are a CRO's responsibilities: I. Statutory financial reporting II. Reporting to the audit committee III. Compliance with risk regulatory standards IV. Operational riskA . I and IIB . II and IVC . III and IVD . All of the aboveView AnswerAnswer: C Explanation: Statutory financial reporting...