Question 1

Which of the following statements describes correctly the objectives of position mapping ?

Options :

A :

For VaR calculations, mapping converts positions based on their deltas to underlying

factor risks.

B :

Position mapping models risk factors affecting the value of a position as combination of

core risk factors used in the VaR calculations.

C :

Position mapping groups similar positions into one group based on the closeness of

their respective VaR.

D :

Position mapping reduces the possible number of risk factors to a computationally

manageable level.

E : I and II

F : II and IV

G : I, II and III

H : II, III, and IV

Answer: A

Question 2

A bank considers issuing new capital to increase its Tier 1 capital levels. Which of the

following financial instruments would most likely to be considered?

Options :

A : Long-term and callable debt convertible to equity

B : Convertible preferred shares

C : Short-term callable debt

D : Short-term debt convertible to non-cumulative preferred shares

Answer: B

Question 3

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 ___ return on equity for the bank, because the cash generated by the risk-transfer and the overall ___ o the bank's exposure to the risk.

Options :

A : Increases; increase;

B : Increases; reduction;

C : Decreases; increase;

D : Decreases; reduction;

Answer: B

Question 4

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?

Options :

A :

A matched book strategy that allows the trading desk to match all customer positions

immediately with an equal and opposite position by trading internally or with another bank.

B :

A covering strategy that manages positions in the product by executing covering deals

or hedging deal at the discretion of the trading des.

C :

A passive hedging strategy that allows the traders to price transactions with customers

and other banks, at the relevant bid price on the market.

D :

A market-maker strategy that allows the traders to quote a buy and sell price to

customers and other banks and to trade at the relevant price on the sell side of the market.

Answer: A

Question 5

Which one of the following four statements about hedging is INCORRECT?

Options :

A :

Traders can hedge their risks by taking an appropriate position in the underlying

instrument.

B : Traders can hedge their portfolio risks by taking a position in a different instrument.

C :

For a fully hedged portfolio, any changes in markets prices will typically produce

significant changes in the market value of the portfolio.

D :

A large number of hedge positions is generally required to match the underlying

transaction completely.

Answer: C

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