Question 1

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

Question 2

Which of the following decisions need to be made as part of laying down a system for calculating VaR:I. The confidence level and horizonII. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluationIII. Whether the VaR is to be disclosed in the quarterly financial statementsIV. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10days

Options :

A : I and III

B : II and IV

C : I, II and IV

D : All of the above

Answer: C

Question 3

Which of the following is true in relation to the application of Extreme Value Theory when applied tooperational risk measurement?I. EVT focuses on extreme losses that are generally not covered by standard distribution assumptionsII. EVT considers the distribution of losses in the tailsIII. The Peaks-over-thresholds (POT) and the generalized Pareto distributions are used to model extreme valuedistributionsIV. EVT is concerned with average losses beyond a given level of confidence

Options :

A : I and IV

B : II and III

C : I, II and III

D : I, II and IV

Answer: C

Question 4

Which of the following is true for the actuarial approach to credit risk modeling (CreditRisk+):

Options :

A : Default correlations between obligors are accounted for using a multivariate normal model

B : The number ofdefaults is modeled using a binomial distribution where the number of defaults are considered discrete events

C : The approach considers only default risk, and ignores the risk to portfolio value from credit downgrades

D : The approach is based upon historical rating transition matrices

Answer: C

Question 5

Whichof the following statements are true in relation to Historical Simulation VaR?I. Historical Simulation VaR assumes returns are normally distributed but have fat tailsII. It uses full revaluation, as opposed to delta or delta-gamma approximationsIII. Acorrelation matrix is constructed using historical scenariosIV. It particularly suits new products that may not have a long time series of historical data available

Options :

A : II

B : II and III

C : I and IV

D : All of the above

E : A

Answer: A

Free 8010 Mock Exam – Practice Online Confidently

Buying Options: