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1. A risk associate evaluating his current portfolio of assets and liabilities wants to determine how sensitive this portfolio is to changes in interest rates. Which one of the following four metrics is typically used for this purpose?
A) Duration of default
B) Macaulay duration
C) Effective duration
D) Modified duration
2. Which one of the following four exotic option types has another option as its underlying asset, and as a result of its construction is generally believed to be very difficult to model?
A) Chooser options
B) Binary options
C) Compound options
D) Spread options
3. Which of the following bank events could stress the bank's liquidity position?
I. Obligations to fund assets like mortgages
II. Unusually large depositor withdrawals
III. Counterparty collateral calls
IV.
Nonperforming assets
A) IV
B) I, II, III and IV
C) I, II
D) III, IV
4. Which one of the following four statements regarding commodity derivative risks is INCORRECT?
A) Some commodities can be both in backwardation and a have a strong seasonal element.
B) Calendar spreads represent a special case of basis risk and occur when the relative prices of commodity futures do not come in alignment and the trader becomes exposed to the absolute price movements.
C) Because of the different demand/supply balance in each region and the cost of transporting the oil between regions, a tanker of Brent crude oil in the UK will have a different value to a UK buyer than a tanker of Arab light crude oil in Singapore, which results in the basis risk.
D) In most commodities, the longest term contracts are the most volatile, while the shortest term forward contract are the least volatile.
5. Which of the following statements describes correctly the objectives of position mapping ?
A) For VaR calculations, mapping converts positions based on their deltas to underlying factor risks.
B) II and IV
C) I and II
D) Position mapping groups similar positions into one group based on the closeness of their respective VaR.
E) II, III, and IV
F) Position mapping models risk factors affecting the value of a position as combination of core risk factors used in the VaR calculations.
G) Position mapping reduces the possible number of risk factors to a computationally manageable level.
H) I, II and III
Solutions:
Question # 1 Answer: D | Question # 2 Answer: C | Question # 3 Answer: B | Question # 4 Answer: D | Question # 5 Answer: F |
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