Question 1

Which of the following decisions need to be made as part of laying down a system for calculating VaR:

I. The confidence level and horizon

II. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation

III. Whether the VaR is to be disclosed in the quarterly financial statements

IV. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10

days

Options :

A : I and III

B : II and IV

C : I, II and IV

D : All of the above

Answer: C

Question 2

The Options Theoretic approach to calculating economic capital considers the value of capital as being equivalent to a call option with a strike price equal to:

Options :

A : The notional value ofthe debt

B : The market value of the debt

C : The value of the firm

D : The value of the assets

Answer: A

Question 3

The Options Theoretic approach to calculating economic capital considers the value of capital as being equivalent to a call option with a strike price equal to:

Options :

A : The notional value ofthe debt

B : The market value of the debt

C : The value of the firm

D : The value of the assets

Answer: A

Question 4

According to Basel II's definition of operational loss event types, losses due to acts by third parties intended to defraud, misappropriate property or circumvent the law are classified as

Options :

A : Internal fraud

B : Execution delivery and system failure

C : External fraud

D : Third party fraud

Answer: C

Question 5

A risk management function is best organized as:

Options :

A : integrated with the risk taking functions as risk management should be a pervasive activity carried out at all levels of theorganization.

B : report independently of the risk taking functions

C : reporting directly to the traders, as to be closest to the point at which risks are being taken

D : a part of the trading desks and other risk taking teams

Answer: B

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