Financial Risk and Regulation 2016-FRR Dumps Updated Nov 16, 2022 – TestBraindump [Q42-Q63]

Q42. Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions
in banks?

Q43. Bank Sigma has an opportunity to do a securitization deal for a credit card company, but has to retain a portion
of the residual risk of the deal with an estimated VaR of $8 MM. Its fees for the deal are $2 MM, and the
short-term financing costs are $600,000. What would be the RAROC for this transaction?

Q44. Which one of the four following statements about the Risk Adjusted Return on Capital (RAROC) is correct?
RAROC is the ratio of:

Q45. As DeltaBank explores the securitization business, it is most likely to embrace securitization to:
I. Bring transparency to the bank’s balance sheet
II. Create a new profit center for the bank
III. Strategically release risk capital and regulatory capital for redeployment
IV. Generate cash for additional debt origination

Q46. Over a long period of time DeltaBank has amassed a large equity option position. Which of the following risks
should be considered in this transaction?
I. Counterparty risk on long OTC option positions
II. Counterparty risk on short OTC option positions
III. Counterparty risk on long exchange-traded option positions
IV. Counterparty risk on short exchange-traded option positions

Q47. What do option deltas measure?

Q48. Which one of the following four statements regarding bank’s exposure to credit and default risk is
INCORRECT?

Q49. Except for the credit quality of the Credit Default Swap protection seller, the following relationship correctly
approximates the yield on a risk-free instrument:

Q50. An options trader is assessing the aggregate risk of her currency options exposures. As an options buyer, she
can potentially ___ lose more than the premium originally paid. As an option seller, however, she has a ___
risk on the contract and always receives a premium.

Q51. A bank owns a portfolio of bonds whose composition is shown below.

What is the modified duration of the portfolio?

Q52. To safeguard its capital and obtain insurance if the borrowers cannot repay their loans, Gamma Bank accepts
financial collateral to manage its credit risk and mitigate the effect of the borrowers’ defaults. Gamma Bank
will typically accept all of the following instruments as financial collateral EXCEPT?

Q53. James Johnson has a $1 million long position in ThetaGroup with a VaR of 0.3 million, and $1 million long
position in VolgaCorp with a VaR of 0.4 million. The returns of the two companies have zero correlation.
What is the portfolio VaR?

Q54. Which of the following risk types are historically associated with credit derivatives?
I. Documentation risk
II. Definition of credit events
III. Occurrence of credit events
IV. Enterprise risk

Q55. When operating in a heavily traded currency, a commercial and retail bank’s treasury is likely to focus on
cover operations. Which one of the following four commercial and retails treasury’s operations is known as a
cover operation?

Q56. Short-selling is typically associated with the following risks:
I. Potential for extreme losses
II. Risk associated with the availability of shares to borrow
III. Market behavior risk
IV. Liquidity risk

Q57. A risk analyst at EtaBank wants to estimate the risk exposure in a leveraged position in Collateralized Debt
Obligations. These particular CDOs can be used in a repurchase transaction at a 20% haircut. If the VaR on a
$100 unleveraged position is estimated to be $30, what is the VaR for the final, fully leveraged position?

Q58. A customer of EtaBank, Alfred Fall, fell on the marble floors of the bank and sustained substantial injuries.
Subsequently, he won a personal injury claim of $50,000 against EtaBank. How should EtaBank’s operational
loss data event information database categorize this event?

Q59. Which one of the following four statements correctly describes an American call option?

Q60. Which one of the following four statements about the relationship between exchange rates and option values is
correct?

Q61. Which one of the following four statements does identify correctly the relationship between the value of an
option and perceived exchange rate volatility?

Q62. Which one of the following four physical commodities markets has the right combination of characteristics
that generally allows short selling in the market, without making the short-selling transaction prohibitively
expensive?

Q63. Rising TED spread is typically a sign of increase in what type of risk among large banks?
I. Credit risk
II. Market risk
III. Liquidity risk
IV. Operational risk