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Risk Mgmt
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Questions in this quiz (22)
1What is the correct interpretation of a EUR 5,000,000.00 overnight VaR figure with a 99% confidence level?
- AA loss of at least EUR 5,000,000.00 can be expected in 99 out of the next 100 days.
- BA loss of at most EUR 5,000,000.00 can be expected in 1 out of the next 100 days.
- CA loss of at least EUR 5,000,000.00 can be expected in 1 out of the next 100 days.
- DAn average loss of at EUR 5,000,000.00 can be expected in 1 out of the next 100 days.
2Which of the following item does not belong to the 2009 revisions to the market risk framework (“Basel 2.5”)?
- AThe introduction of the IRC based on a one-year capital horizon at a 99.9 percent confidence level, consistent with the treatment of credit exposures in the banking book
- BThe introduction of stressed VaR based on the 10-day, 99th percentile VaR measure with model inputs calibrated to historical data from a continuous 12-month period of significant financial stress
- CThe introduction of the Leverage Ratio
- DBanks are now explicitly required to incorporate all risk factors in their VaR models that are deemed relevant for pricing purposes
3A VaR measure increases with:
- Ahigher correlation of underlying risk factors
- Ba shorter time horizon
- Ca lower confidence level
- Dlower correlation of underlying risk factors
4Assume you are long a 5 year floating rate note. You have swapped this FRN with a plain vanilla receiver swap into a synthetic fixed rate bond. Which of the following statements is correct ?
- AIn case of default of the Floating Rate Note the total loss is not affected by the moves of the interest curve
- BIn case of default of the Floating Rate Note the total loss is as higher as lower interest rates are at the same time
- CIn case of default of the Floating Rate Note the total loss is as higher as higher interest rates are at the same time
- DIn case of default of the Floating Rate Note the total loss is as lower as higher interest rates are at the same time.
5Assume you have issued a 10 year fixed coupon corporate bond which is putable by the investor after 5 years . You have swapped this fixed rate liability with a payer swap into a synthetic floating rate liability. Which of the following statements is correct ?
- AIn case the investor is executing the put right of the Corporate Bond your position is not affected by moves of the interest curve
- BIn case the investor is executing the put right of the Corporate Bond you will probably realising losses by unwinding the swap because your interest rate swap has a negative market value
- CIn case the investor is executing the put right of the Corporate Bond you will probably realising profits by unwinding the swap because your interest rate swap has a positive market value
- DIn case the investor is executing the put right of the Corporate Bond you will probably realising losses by unwinding the swap because your interest rate swap has a positive market value.
6With effect of Basel III, counterparty credit risk capital charges on the trading book will be strengthened in significant ways. Which of the following statements concerning the Credit Value Adjustment (CVA) below is wrong ?
- AIn addition to the default risk charge, banks must add a capital charge to cover the risk of mark-to- market losses on expected counterparty migration risk for all over-the-counter derivatives but not transactions with central counterparties
- BIn addition to the default risk charge, banks must add a capital charge to cover the risk of mark-to- market losses on expected counterparty migration risk for all over-the-counter derivatives including transactions with central counterparties.
- CThe CVA charge is determined pursuant to a formula, dependant upon whether the bank has internal model approval or uses the standardised method for determining trading book capital.
- DBanks must calculate the default risk capital charge for counterparty credit risk based on the Effective Expected Positive Exposure (EEPE)
7Which of the statements below is an adequate definition for the so called “wrong way” risk ?
- Awrong way risk is that the value of a derivative contract can be highly and adversely correlated with the creditworthiness of the counterparty.
- Bwrong way risk is the risk that the effectiveness of a hedge is not in the range of 80% - 125%
- Cwrong way risk is the risk that the effectiveness of a hedge is not in the range of 70% - 130%
- Dwrong way risk is the risk that the risk factors of a derivative instrument on the trading book are not moving in the forecasted direction
8Which of the following situations below is an example for wrong way risk?
- AEntering at beginning of October 2008 into a repo trade with the islandic bank Landsbanki accepting bonds issued by the other islandic bank Glitnir as collateral
- Bbuying a bond issued by Glitnir and entering into a CDS with Landsbanki as protection buyer on the same bond at beginning of October 2008. (negative basis trade)
- Ca bank entered with Lehman into an FX swap and transfered on this basis EUR 350 Mn to Lehman on September 15th 2008.
- Da hedge fund being long US-AAA-RMBS-tranches and short US-government risk before the russian crisis in 2008
9Which of the following statements is wrong?
- AReverse stress test seek to identify maximum stress resistance of banks by increasing the risk factors.
- Breverse stress test are designed to explore the events that could cause a significant impact on the bank.
- Creverse stress tests have been designed to find out which reverse effects the default of a bank has on the stability of the market.
- Dreverse stress tests aim to find exactly those scenarios that cause the bank to cross the frontier between survival and default
10Which of the following item does not belong to the European Market Infrastructure Regulation (“EMIR”)?
- AShifting derivatives to Organized Trading Facilities
- BReporting of every derivative to central trade repositories
- CCentral Clearing Obligation for financial counterparties
- DCentral Clearing Obligation for non-financial counterparties insofar as a clearing treshold is exceeded
11If the average maturity of the bank’s assets is greater than that of the liabilities, the effect of an increase in interest rates will be:
- Afavourable
- Bunfavourable
- Cirrelevant
- Dimmunised
12Which of the statements below concerning the definition of operational risk under Basel II is wrong ?
- AExternal Fraud- theft of information, hacking damage, third-party theft and forgery – is part of operational risk.
- Breputational risk - damage to an organization through loss of its reputation or standing – is part of operational risk
- CClients, Products, & Business Practice- market manipulation, antitrust, improper trade, product defects, fiduciary breaches, account churning – is part of operational risk.
- Dreputational risk - damage to an organization through loss of its reputation or standing - can arise as a consequence or impact of operational failures
13Which of the statements below is wrong?
- ABanks using the standardised approach under Basel II measuring their cedit risk pursuant to fixed risk weights based on external credit assessments
- BBanks using the Foundation IRB approach under Basel II using supervisory formulas filled with internally determined inputs of probability of default (PD) and inputs fixed by regulators of loss given default (LGD), exposure at default (EAD) and maturity (M)
- CBanks using the Foundation IRB approach under Basel II using sophisticated formulas filled with internally determined inputs of probability of default (PD) and loss given default (LGD) and inputs fixed by regulators of exposure at default (EAD) and maturity (M)
- DBanks using the Advanced IRB approach under Basel II measuring their credit risk using sophisticated formulas and internally determined inputs of PD, LGD, EAD and M
14A bank expects interest rates to rise with a parallel upward shift in the yield curve. What action should the bank take, if it wants to benefit from this view?
- Adecrease the maturity structure of its liabilities
- Bincrease the maturity structure of its liabilities
- Cmatch maturity structure of assets and liabilites
- Dlengthen the maturity of its asset portfolio
15In 2019 the following statement below concerning increased capital ratios under Basel III will be true ?
- AMinimum Tier 1 Ratio of 6.0% and Capital Conservation Buffer of 2.5%
- BMinimum Tier 1 Ratio nof 4.0% and Capital Conservation Buffer of 2.5%
- CMinimum Tier 1 Ratio of 4.5% and Capital Conservation Buffer of 1.5%
- DMinimum Tier 1 Ratio of 6.5% and Capital Conservation Buffer of 2.5%
Question 18
16In 2019 the following statement below concerning increased capital ratios under Basel III will be true ?
- AMinimum Core Equity Tier1 Ratio of 4.5% and Minimum Total Capital plus Conservation buffer of 8%
- BMinimum Core Equity Tier1 Ratio of 4.5% and Minimum Total Capital plus Conservation buffer of 10.5%
- CMinimum Core Equity Tier1 Ratio of 4% and Minimum Total Capital plus Conservation buffer of 10.5%
- DMinimum Core Equity Tier1 Ratio of 5.5% and Minimum Total Capital plus Conservation buffer of 10.5%
17Which of the definitions below is not correct for the Expected Shortfall / Conditional Value at Risk ?
- AThe Conditional Value at Risk at q% level is the expected loss on the portfolio in the worst q% of the cases.
- BThe Conditional Value at Risk at q% level is the maximum loss in the cases, where the loss exceeds the VaR at q% level.
- CThe Conditional Value at Risk at q% level is the average loss in the cases, where the loss exceeds the VaR at q% level.
- DThe Conditional Value at Risk at q% level is the expected loss in the cases, where the loss exceeds the VaR at q% level.
18Which statement below is correct under Basel III? Expected credit loss is a function of which of the following sets of parameters:
- A1 minus recovery rate, probability of default and exposure at default
- Bexposure at origination, exposure at default and loss given default
- Closs given default, 1 minus recovery rate and exposure at default
- Dexposure at origination, recovery rates and probability of default
19Which statement below is wrong under Basel III ?
- AAn Expected Positive Exposure model is designed to produce a distribution of possible exposure values at future time horizons for a particular counterparty
- Bthe regulatory capital metric “effective expected positive exposure” will be used to determine the regulatory capital for covering counterparty risk
- Cthe default risk capital charge for counterparty credit risk must equal the sum of the capital charge based on Effective Expected Positive Exposure using current market data and the capital charge based on Effective EPE using stressed data.
- Dthe default risk capital charge for counterparty credit risk must equal the greater of the capital charge based on Effective Expected Positive Exposure using current market data and the capital charge based on Effective EPE using stressed data.
20A risk analyst is trying to estimate the 3 month Credit VaR for a risky bond. The Credit VaR is defined as the maximum unexpected loss at a confidence level of 99.50% over a 3 month horizon. Assume that the bond is valued at 5 Mio 3 month forward, and the one year survival probability is 98% for this bond, what is closest to your estimate of the Credit VaR for this bond assuming 40% recovery? (Hint: If the 1 year survival probability is q, the survival probability for T years is qT .)
- A2,985 Mio
- B1,985 Mio
- C0,00 Mio
- D4,985 Mio
21Assuming that the credit quality of the counterparty remains constant, how does the credit exposure of a long OTC receiver swaption change when the swap rate decreases?
- ADecrease
- BIncrease
- CDoes not vary with underlying swap rate
- DThere is no credit exposure on long options
22A German bank lends EUR 100 Mio to a Greek bank for one year and receives EUR 130 Mio worth of Greek government securities as collateral. Assuming that the 1-year 97.50% VaR on the Greek government securities is EUR 30 Mio and the Greek banks 1-year probability of default is 10.00%, what is the German bank's probability of losing no money on this trade over the next year? Assume that the default of the Greek bank has no impact on the value of the government bonds!
- ALess than 95%
- BApproximately 95%
- CBetween 95% and 99%
- DGreater than 99%
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- BWL Quiz on Risk Mgmt, created by Philipp Klein on 16/12/2016.
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- Philipp Klein
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- English
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