Question 1

A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations.

If these CDOs can be used in a repo transaction at a 20% haircut, what is the maximum

leverage factor for a transaction with the CDOs?

Options :

A : 0.8

B : 1.5

C : 3

D : 5

Answer: C

Question 2

Returns on two assets show very strong positive linear relationship. Their correlationshould be closest to which of the following choices?

Options :

A : 15%

B : 45%

C : 60%

D : 100%

Answer: D

Question 3

Bank Omega is using futures contracts on a well capitalized exchange to hedge its marketrisk exposure. Which of the following could be reasons that expose the bank to liquidityrisk?I. The bank may not be able to unwind the futures contracts before expiration.II. Prices may move such that a loss results on the hedge.III. Since futures require margins which are settled every day, the bank could find itselfscrambling for funds.IV. Exchange margin requirements could change unexpectedly.

Options :

A : III, IV

B : I, III, IV

C : I, II, III, IV

D : I, IV

Answer: B

Question 4

Of all the risk factors in loan pricing, which one of the following four choices is likely to be the least significant?

Options :

A : Probability of default

B : Duration of default

C : Loss given default

D : Exposure at default

Answer: B

Question 5

Which of the following statements presents an advantage of using risk and control selfassessments (RCSA) in the operational risk framework?

I. RCSA provides very accurate scoring of risks and controls due to its subjective nature.

II. RCSA program provides insight into risks that exist in a firm, but that may or may not

have occurred before.

III. RCSA program can produce biased but transparent operational risk reporting.

IV. RCSA program allows each department to take ownership of its own risks and controls.

Options :

A : I and III

B : II and IV

C : I, II and III

D : II, III, and IV

Answer: B

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