Question 1

All of the following are reasons that Nick Leeson engaged in aggressive speculative trading in the Barings Bank collapse except:

Options :

A : Barings’ lack of risk management oversight.

B : Barings’ risk management models were awed.

C : he was attempting to recover previous trading losses.

D : his authority over settlement operations allowed him to hide trading losses.

Answer: B

Question 2

Using the Black-Scholes model, compute the value of a European call option using the following imputs:Underlying stock price: $100Exercise price: $90Risk-free interest rate: 5%Volatility: 20%Dividend yield: 0%Time to expiration: one yearThe Black-Scholes call option price is closest to:

Options :

A : $15.33.

B : $13.65.

C : $16.71.

D : $17.99.

Answer: C

Question 3

A risk manager at a bank is explaining foreign exchange rate parity concepts to a group of newly hired analysts. The manager describes the assumptions, formulas, and implications of the covered interest rate parity and uncovered interest rate parity theorems. Which of the following statements is correct regarding these theorems?

Options :

A : Covered interest rate parity holds, among other reasons, because the amount of currency that will be obtained from investing in either the domestic or the foreign currency is certain.

B : Forward rates are found using the covered interest rate parity theorem by multiplying the spot rate by the ratio of 1 plus the risk-free interest rate in the base currency to 1 plus the risk-free interest rate in the quote currency raised to the time to maturity.

C : Forward points, when expressed as a percentage of the spot rate, can be used to determine the interest rate and inflation differential in uncovered interest rate parity.

D : Uncovered interest rate parity is a no-arbitrage theorem that incorporates each country’s inflation rate into the covered interest rate parity formula to predict future exchange rates.

Answer: A

Question 4

An analyst is estimating whether a fund's excess return for a quarter is related to interest rates and last quarter's excess return. The regression equation is found to have unconditional heteroskedasticity and serial correlation. Which of the following is most accurate? Parameter estimates will be:

Options :

A : accurate and statistical inference about the parameters will be valid.

B : inaccurate but statistical inference about the parameters will be valid.

C : inaccurate and statistical inference about the parameters will not be valid.

D : accurate but statistical inference about the parameters will not be valid.

Answer: C

Question 5

An analyst applying a reinforcement learning model has assigned a probability to exploitation of 65%. As she completes more trials, she can reasonably expect that the probability will increase above:

Options :

A : 65% for exploitation.

B : 50% for exploitation

C : 50% for exploration.

D : 35% for exploration.

Answer: A

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