Question 1

Which of the following is a cause ofmodel risk in risk management?

Options :

A : Programming errors

B : Misspecification of the model

C : Incorrect parameter estimation

D : All of the above

Answer: D

Question 2

The VaR of a portfolio at the 99% confidence level is $250,000 when mean return is assumed to be zero. If the assumption of zero returns is changed to an assumption of returns of $10,000, what is the revised VaR?

Options :

A : 260000

B : 240000

C : 273260

D : 226740

Answer: B

Question 3

In respect of operational risk capital calculations, the Basel II accord recommends a confidence leveland time horizon of

Options :

A : 99.9% confidence level over a 10 day time horizon

B : 99% confidence level over a 10 year time horizon

C : 99% confidence level over a 1 year time horizon

D : 99.9% confidence level over a 1 year time horizon

Answer: D

Question 4

Under the KMV Moody's approach to calculating expectingdefault frequencies (EDF), firms' default on obligations is likely when:

Options :

A : expected asset values one year hence are below total liabilities

B : asset values reach a level below short term debt

C : asset values reach a level below totalliabilities

D : asset values reach a level between short term debt and total liabilities

Answer: D

Question 5

Under thebasic indicator approach to determining operational risk capital, operational risk capital is equal to:

Options :

A : 15% of the average gross income (considering only the positive years) of the past three years

B : 15% of the average net income (considering only thepositive years) of the past three years

C : 25% of the average gross income (considering only the positive years) of the past three years

D : 15% of the average gross income of the past five years

Answer: A

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