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1. Which of the following statements are reasons for mathematical valuation and risk assessment models to be misleading or inaccurate?
I. There could be missing factors in models.
II. The data used as input for the model could be bad or wrong.
III. Model results could be misinterpreted.
IV.
There could be errors in the derivation of the model.
A) I, II, and III
B) III and IV
C) I, III, and IV
D) I, II, III IV
2. The Basel II Accord's operational risk definition excludes all of the following items EXCEPT:
A) Geopolitical risk
B) Reputational risk
C) Legal risk
D) Strategic risk
3. Returns on two assets show very strong positive linear relationship. Their correlation should be closest to which of the following choices?
A) 45%
B) 60%
C) 100%
D) 15%
4. Bank Alpha is making a decision about lending 10-year loans in a sector that is fairly illiquid and is looking at various options to fund the loans. Which of the following options to fund the loans exhibits the most exogenous liquidity risk?
A) The 1-year treasury markets
B) Foreign exchange markets
C) Overnight interbank markets
D) The 6-month LIBOR markets
5. To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a credit portfolio manager should use the following metric:
A) Credit VaR
B) Expected loss
C) Unexpected loss
D) Factor sensitivity
Solutions:
| Question # 1 Answer: D | Question # 2 Answer: C | Question # 3 Answer: C | Question # 4 Answer: C | Question # 5 Answer: B |
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