Question 1

Under the KMV Moody's approach to calculating expectingdefault frequencies (EDF), firms' default on obligations is likely when:

Options :

A : expected asset values one year hence are below total liabilities

B : asset values reach a level below short term debt

C : asset values reach a level below totalliabilities

D : asset values reach a level between short term debt and total liabilities

Answer: D

Question 2

Which of the following decisions need to be made as part of laying down a system for calculating VaR:

I. The confidence level and horizon

II. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation

III. Whether the VaR is to be disclosed in the quarterly financial statements

IV. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10

days

Options :

A : I and III

B : II and IV

C : I, II and IV

D : All of the above

Answer: C

Question 3

Which of the following statements are true:

I.Top down approaches help focus management attention on the frequency and severity of loss events, while

bottom up approaches do not.

II. Top down approaches rely upon high level data while bottom up approaches need firm specific risk data to

estimate risk.

III. Scenario analysis can help capture both qualitative and quantitative dimensions of operational risk.

Options :

A : III only

B : II and III

C : I only

D : II only

Answer: B

Question 4

Under the internal ratings based approach for risk weighted assets, for which of the following parameters must each institution make internal estimates (as opposed to relying upon values determined by a national supervisor):

Options :

A : Probability of default

B : Effective maturity

C : Loss given default

D : Exposure at default

Answer: A

Question 5

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

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