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?

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?

Which of the following factors can cause obligors to default at the same time?

I. Obligors may be harmed by exposures to similar risk factors simultaneously.

II. Obligors may exhibit herd behavior.

III. Obligors may be subject to the sampling bias.

IV. Obligors may exhibit speculative bias.

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

ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies have an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, the actual probability would be underestimated by:

Which one of the following four statements regarding bank's exposure to credit and default risk is INCORRECT?

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.

By lowering the spread on lower credit quality borrowers, the bank will typically achieve all of the following outcomes EXCEPT:

Which one of the following four statements does identify correctly the relationship between the value of an option and perceived exchange rate volatility?

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?

In the United States, foreign exchange derivative transactions typically occur between

Which one of the following four alternatives lists the three most widely traded currencies on the global foreign exchange market, as of April 2007, in the decreasing order of market share? EUR is the abbreviation of the European euro, JPY is for the Japanese yen, and USD is for the United States dollar, respectively.

After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ risk on the residual pieces of the credit portfolio, and as a result it ___ return on equity for the bank.

A credit risk analyst is evaluating factors that quantify credit risk exposures. The risk that the borrower would fail to make full and timely repayments of its financial obligations over a given time horizon typically refers to:

Gamma Bank has $300 million in loans and $200 million in deposits. If the modified duration of the loans is estimated to be 2, and the modified duration of the deposits is estimated to be 1, then the change in Gamma Bank's equity value per 1% change in yield will be:

If a bank is long £500 million pounds, short £300 million in delta-equivalent pound options, and long £100 million in pound-denominated stocks, what is the amount of pound exposure that would be shown in the aggregated risk reports?

To improve the culture and awareness of the operational risk, Gamma Bank's CRO decides to promote three activities within her organization. Which one of the following four activities is NOT typically used to develop an operational risk framework?

What are the add-on losses faced by a bank that is going bankrupt?

I. The discount accepted by the bank for selling its assets in a fire sale.

II. The increased cost of funding liabilities in a financially distressed situation.

III. The reduction in the present value of future growth opportunities.

IV. Loss of goodwill and intangible assets.

Which among the following are shortfalls of the static liquidity ladder model?

I. The static model gives a liquidity estimate only after the bank faces the liquidity problem.

II. The static model can only make projections over a few days.

III. The static model does not incorporate uncertainty in the analysis.

Which of the following bank events could stress the bank's liquidity position?

I. Obligations to fund assets like mortgages

II. Unusually large depositor withdrawals

III. Counterparty collateral calls

IV. Nonperforming assets

Suppose Delta Bank enters into a number of long-term commercial and retail loans at fixed rate prevailing at the time the loans are originated. If the interest rates rise:

Which one of the following four statements regarding the current value of a transaction and its purposes is INCORRECT?

A bank has a Var estimate of $100 million. It is considering a new transaction which has a correlation of 0.35 with the current portfolio and a standalone VaR estimate of $5 million. What would be the new VaR for the bank if it carried out the transaction?

What is the role of market risk management function within a bank?

I. Control and minimize the risks the bank should take.

II. Establish a comprehensive market risk policy framework.

III. Define, approve and monitor risk limits.

IV. Perform stress tests and other qualitative risk assessments.

DeltaFin wants to develop a control scoring method for its RCSA program. Which of the following statements regarding scoring methods are correct?

I. DeltaFin can develop a control scoring method that assesses both the design and the performance of the control.

II. DeltaFin can combine the design and performance scores for each control to produce an overall control effectiveness score.

III. DeltaFin can use the control performance scores to compute an overall risk severity score.

IV. DeltaFin can determine its own appropriate control scoring method.

For a bank a 1-year VaR of USD 10 million at 95% confidence level means that:

Bank Alpha is making a decision about lending 10-year loans in a sector that is fairly illiquid and is looking at various options to fund the loans. Which of the following options to fund the loans exhibits the most exogenous liquidity risk?

A risk analyst is considering how to reduce the bank's exposure to rising interest rates. Which of the following strategies will help her achieve this objective?

I. Reducing the average repricing time of its loans

II. Increasing the average repricing time of its deposits

III. Entering into interest rate swaps

IV. Improving earnings capacity and increasing intermediated funds

Which of the following factors are typically included in standard operational risk definitions?

I. Human errors

II. Process failure

III. Systems failure

IV. Unexpected events

Which of the following statements about a bank's behavior regarding Risk Adjusted Return on Capital (RAROC) is correct?

I. A bank should always seek to maximize their overall RAROC.

II. A bank should consider investing in a business even with negative RAROC if it increases the RAROC of the bank as a whole.

III. A bank should minimize its overall RAROC by controlling the absolute and relative amount of risk of its businesses.

IV. A bank should maximize its RAROC by always investing in a new business that maximizes the RAROC for that business unit.

Why do regulatory standards impose formulaic capital calculations for all of the banks activities?

I. If the banks use different models it is difficult for a regulator to compare results across banks.

II. By imposing standardized calculations regulators can make sure that banks are not missing key risks in their calculations.

III. By imposing standardized calculations regulators can make sure that banks do not use capital calculations to game the banking regulation system.

A corporate bond was trading with 2%probability of default and 60% loss given default. Due to the credit crisis the probability of default increased to 10% and the loss given default increased to 100%. Assuming that the risk premium remained the same how did the credit spread change?

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

Which one of the following four statements represents a possible disadvantage of using total return swap to manage equity portfolio risks?

Modified duration of a bond measures:

Present value of a basis point (PVBP) is one of the ways to quantify the risk of a bond, and it measures:

Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions in banks?

To achieve leverage in long positions, a bank can use the following strategy:

I. Securities may be purchased with borrowed funds using a bank loan from the broker.

II. Securities may be borrowed on margin by taking a loan from a broker.

III. Securities may be purchased and used in a repo transaction to generate cash for further security purchases.

IV. The bank may enter into a derivative transaction, such as a total return swap, that requires little to no collateral but mimics the performance of a long or short position in the underlying instrument.

A portfolio consists of two floating rate bonds and one fixed rate bond.

Based on the information below, modified duration of this portfolio is

Which one of the following four statements best describes challenges of delta-normal method of mapping options positions?

Delta-normal method understates

Which one of the following four exercise features is typical for the most exchange-traded equity options?

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

Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should Unico take to limit its risk exposure?

Short-selling is typically associated with the following risks:

I. Potential for extreme losses

II. Risk associated with the availability of shares to borrow

III. Market behavior risk

IV. Liquidity risk

Which one of the following four statements about equity indices is INCORRECT?

10 basis points are equal to:

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?

To protect the oranges harvest price level, a farmer needs to take a hedge position. Provided that he produces the amount he hedged, which one of the following four strategies will allow the farmer to accomplish his goal?