Question 1

Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's expected loss be?

Options :

A : $500

B : $750

C : $1,000

D : $1,300

Answer: C

Question 2

Which of the following attributes of duration gap model typically cause criticism?

I. Basis risk

II. Errors in the linear model

III. Costs of immunization

IV. Constant nature of calculation

Options :

A : I, II

B : II, III, IV

C : I, II, III

D : I, III, IV

Answer: C

Question 3

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

Options :

A : A few large internationally active banks, where the risks become concentrated

B : All banks with international branches, where the risks become widely distributed based on trading exposures

C : Regional banks with international operations, where the risks depend on the specific derivative transactions.

D : Thrifts and large commercial banks, where the risks become isolated.

Answer: A

Question 4

Company A needs to provide a risk probability/frequency score for its RCSA program. If the

event is likely to happen once in 2 years, then the frequency score will be equal to:

Options :

A : 0.2

B : 0.5

C : 1

D : 2

Answer: C

Question 5

What is a common implicit assumption that is made when computing VaR using parametric

methods?

Options :

A : The expected returns are constant, but the standard deviation changes over time.

B : The standard deviations of returns are constant, but the mean changes over time.

C : The mean of and the standard deviations of returns are both constant.

D : The mean and standard deviation of returns change periodically in response to crises.

Answer: C

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