Question 1

A risk manager is trying to estimate the default time for asset i based on the default copula correlation of asset i to n assets. Which of the following equations best defines the process that the risk manager should use to generate and map random samples to estimate the default time?

Options :

A : CGD[QB(t),QC(t)] = M2[N−1(QB(t)), N−1(QC(t)) ; ρ].

B : −1(G1(u1)),…,Fn

C : Mn(•) = Qi(τi).

D : −1(Q1(t)),…,Nn

Answer: A

Question 2

Bank Macatawa has a $150 million exposure to Holland Metals Co. The exposure is secured by $125 million of collateral consisting of AA+-rated bonds. Holland Metals Co. is unrated. The collateral risk weight is 20%. Bank Macatawa assumes an adjustment to the exposure of +15% to allow for possible increases in the exposure and allows for a −25% change in the value of the collateral. Risk-weighted assets for the exposure are closest to:

Options :

A : $93.75 million.

B : $172.50 million.

C : $118.13 million.

D : $78.75 million.

Answer: D

Question 3

Which of the following statements regarding risk assessment is most accurate?

Options :

A : Risk and control self-assessments (RCSAs) are a good mixture of qualitative and quantitative aspects.

B : The main purpose of risk assessment is to prioritize risk management and risk mitigation responses.

C : When backtesting the results of risk assessment against past incident experience, there is a tendency to underestimate the impact of an operational risk event.

D : When backtesting the results of risk assessment against past incident experience, there is a tendency to overestimate the likelihood of an operational risk event.

Answer: B

Question 4

Which of the following trading instruments would have the most beneficial effect on netting?

Options :

A : Equity options.

B : Futures.

C : Options with up-front premiums.

D : FX options.

Answer: B

Question 5

Which of the following statements best describes a Gaussian copula?

Options :

A : A major disadvantage of a Gaussian copula model is the transformation of the original marginal distributions in order to define the correlation matrix.

B : The mapping of each variable to the new distribution is done by defining a mathematical relationship between marginal and unknown distributions.

C : A Gaussian copula maps the marginal distribution of each variable to the standard normal distribution.

D : A Gaussian copula is seldom used in financial models because ordinal numbers are required.

Answer: C

Higher Test Marks with Free Online FRM-Part-2 Exam Practice

Buying Options: