Question 1

At-the-point approaches tend to be:

Options :

A : neither counter- nor procyclical because they rarely change.

B : procycyclical.

C : countercyclical.

D : neither counter- nor procyclical because they change randomly.

Answer: B

Question 2

A market risk analyst at a regional bank is calculating the annual VaR of portfolio of investment securities. The portfolio has a current market value of USD 3,700,000 with a daily variance of 0.0004. Assuming there are 250 trading days in a year and the daily portfolio returns are independent and follow the same normal distribution with a mean of zero, what is the estimate of the 1-year VaR at the 95% confidence level?

Options :

A : USD 1,924,720

B : USD 2,721,519

C : USD 38,494

D : USD 121,730

Answer: A

Question 3

A risk manager at a bank is explaining foreign exchange rate parity concepts to a group of newly hired analysts. The manager describes the assumptions, formulas, and implications of the covered interest rate parity and uncovered interest rate parity theorems. Which of the following statements is correct regarding these theorems?

Options :

A : Covered interest rate parity holds, among other reasons, because the amount of currency that will be obtained from investing in either the domestic or the foreign currency is certain.

B : Forward rates are found using the covered interest rate parity theorem by multiplying the spot rate by the ratio of 1 plus the risk-free interest rate in the base currency to 1 plus the risk-free interest rate in the quote currency raised to the time to maturity.

C : Forward points, when expressed as a percentage of the spot rate, can be used to determine the interest rate and inflation differential in uncovered interest rate parity.

D : Uncovered interest rate parity is a no-arbitrage theorem that incorporates each country’s inflation rate into the covered interest rate parity formula to predict future exchange rates.

Answer: A

Question 4

One of the basic requirements of a risk control process that a risk and control selfassessment program (RCSA) fails in is the:

Options :

A : expert opinion of managers.

B : ongoing assessment of the e ectiveness of risk management activities.

C : independent veri cation of risk identi cation and measurement.

D : identi cation of expected losses.

Answer: C

Question 5

Regarding the conditions for model selection criteria to demonstrate consistency, which of the following statements is true?I. The most consistent selection criteria with the greatest penalty factor for degrees of freedom is unbiased mean squared error.II. If we consider the fact that the true model may be much more complicated than the models under consideration, then the Akaike information criterion (AIC) measure should be examined.

Options :

A : I only.

B : Both I and II.

C : II only.

D : Neither I nor II.

Answer: C

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