Question 1

A financial institution is considering shedding a business unit to reduce its economic capital requirements. Which of the following is an appropriate measure of theresulting reduction in capital requirements?

Options :

A : Incremental capital for the business unit in consideration

B : Proportionate capital for the business unit in consideration

C : Percentage of total gross income contributed by the business unit in question

D : Marginal capital for the business unit in consideration

Answer: A

Question 2

The VaR of a portfolio at the 99% confidence level is $250,000 when mean return is assumed to be zero. If the assumption of zero returns is changed to an assumption of returns of $10,000, what is the revised VaR?

Options :

A : 260000

B : 240000

C : 273260

D : 226740

Answer: B

Question 3

Under thebasic indicator approach to determining operational risk capital, operational risk capital is equal to:

Options :

A : 15% of the average gross income (considering only the positive years) of the past three years

B : 15% of the average net income (considering only thepositive years) of the past three years

C : 25% of the average gross income (considering only the positive years) of the past three years

D : 15% of the average gross income of the past five years

Answer: A

Question 4

Which of the following carry greater counterparty risk: a forward contract on a 10 year note, or a commercial paper carrying a AA credit rating with identicalmaturity and notional?

Options :

A : The forward contract has greater credit risk as its future gains are unknown

B : Credit risk can not be compared in these terms

C : They both carry the same credit risk

D : The commercial paper has greater credit risk as the entire notional is outstanding

Answer: D

Question 5

A bullet bond and an amortizing loan are issued at the same time with the same maturity and with the same principal. Which of these would have a greater credit exposure halfway through their life?

Options :

A : Indeterminate with the given information

B : They would have identical exposure half way through their lives

C : The amortizing loan

D : The bullet bond

Answer: D

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