Question 1

Which one of the following four options is NOT a typical component of a currency swap?

Options :

A : An initial currency exchange of the notional amount

B : Denomination of the original notional amount into a foreign currency

C : Periodic exchange of interest payments in different currencies

D : A final currency exchange

Answer: B

Question 2

Which of the following statements about the interest rates and option prices is correct?

Options :

A : If rho is positive, rising interest rates increase option prices.

B : If rho is positive, rising interest rates decrease option prices.

C : As interest rates rise, all options will rise in value.

D : As interest rates fall, all options will rise in value

Answer: A

Question 3

Which of the following statements presents an advantage of using risk and control selfassessments (RCSA) in the operational risk framework?

I. RCSA provides very accurate scoring of risks and controls due to its subjective nature.

II. RCSA program provides insight into risks that exist in a firm, but that may or may not

have occurred before.

III. RCSA program can produce biased but transparent operational risk reporting.

IV. RCSA program allows each department to take ownership of its own risks and controls.

Options :

A : I and III

B : II and IV

C : I, II and III

D : II, III, and IV

Answer: B

Question 4

Bank Sigma takes a long position in the oil futures market that requires a 2% margin, i.e.,

the bank has to deposit 2% of the value of the contract with the broker. The futures

contracts were priced at $50 per barrel (bbl) at inception, and rose by $5 to $55. The VaR

on the position is estimated to be $10. What is the return on this transaction on a risk

adjusted basis?

Options :

A : 50%

B : 10%

C : 500%

D : 20%

Answer: A

Question 5

Bank Omega is using futures contracts on a well capitalized exchange to hedge its market

risk exposure. Which of the following could be reasons that expose the bank to liquidity

risk?

I. The bank may not be able to unwind the futures contracts before expiration.

II. Prices may move such that a loss results on the hedge.

III. Since futures require margins which are settled every day, the bank could find itself

scrambling for funds.

IV. Exchange margin requirements could change unexpectedly.

Options :

A : III, IV

B : I, III, IV

C : I, II, III, IV

D : I, IV

Answer: B

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