186 views

Uploaded by Priyanka Agarwal

- case- ch11
- 2013.FRM.1.testBank
- FRM Part - I Test Paper
- FRM VaR Preparation Pristine
- GARP FRM Practice Exams - 2015
- 2010-2015 FRM Practice Exams
- Frm Sample Questions 2011
- Sample Frm Pracfrfqqtice Exam
- FRM Quant Question Bank
- Credit Risk(FRM Exam)
- Frm Practice Exam 052711
- Test FRM
- Minimising Risk Through Bunker Hedging
- FRM_2010_Practice_Exam
- 2006_FRM_Practice.pdf
- 2012 Frm Practice Exam
- Cost of Funding Call Option
- Jun 2005 - Ans
- Examen Frm
- FRM 2

You are on page 1of 3

Q1. If you use Delta-VaR for a portfolio of options, which of the following

statements is always correct?

A: It can sometimes overstate the VaR.

Using delta-VaR for a portfolio that pursues a portfolio insurance strategy

with options will necessarily overstate the VaR over longer periods of time.

Hence, delta-VaR can overstate, but we can also find examples where it

understates.

rescaling the daily VaR using the square-root rule. Let us now assume

that we determine the true gas price process to be mean reverting and

recalculate the VaR. Which of the following statements are true?

A: The recalculated VaR will be less than the original VaR.

If the process is mean reverting then we can no longer scale volatility (and

associated VaR) up by the square root of time. Mean-reversion makes

extreme outcomes less likely since following large losses changes the

conditional mean of the distribution will be higher.

Q3. Of the following options, which one does not benefit from an increase

in the stock price when the current stock price is ＄100 and the

barrier has not yet been crossed:

A: A down and in call with in barrier at ＄90 and strike at ＄110.

Q4. The 1-year US dollar interest rate is 3% and 1-year Canadian dollar

interest rate is 4.5%. The current USD/CAD spot exchange rate is

1.5000. Calculate the 1-year forward rate.

A: 1.5218

1.5218=1.500*(1.045/1.03)

Q5. Suppose you have a position of ＄100 million in the instruments below.

Each one has a maturity of 10 years. Which instrument is most likely to

have a DV01 that exceeds the DV01 of a Treasury strip with 10-year

maturity?

A: Inverse floating rate securities.

Q6. Which of the following properties of ineffective hedges is not correct:

A: SEC disclosure requirements are such that firms have to disclose hedges that

turn out to be ineffective when the hedges mature.

SEC disclosure requirements say nothing about this.

reduce divided payments and to replace them by share repurchases for

an amount equal to the reduction in dividend payments would:

A: Increase the value of a portfolio of calls on common stock.

This has no effect on leverage. It increases the share price, but decreases the

supply of shares over time. This makes calls more valuable.

(BCBS, Basel 2) for the new Basel Accord introduces the advanced

internal rating approach for credit risk. Banks will input their own:

A: EDF and LGD.

Q9.Assuming the time horizon for all transactions is the same, which of the

following transactions would have the least credit risk?

A: A forward sale of oil to a C rated company where the total purchase price is

guaranteed by a letter of credit from an AAA rated bank.

The trade with the least credit risk would be d as it is fully collateralized by a

AAA rated bank. Each of the other answers has a higher potential credit loss.

best as:

A: An option to sell defaulted securities at par value to a third party in

exchange for a serious of fixed cash flows.

A credit default swap is a standard type of credit derivative. It is an option to

sell defaulted securities to a third party at par value.

Q11. Quite a few models were developed in the last few years to measure

credit risk exposure. Which of the models below is based on an actuarial

approach?

A: CreditRisk﹢

Q12. A bank computes the distribution of its loan portfolio

marked-to-market value one year from now using the CreditMetrics

approach of computing values for rating transition outcomes using (a) a

rating agency transition matrix, (b)current forward curves, and (c)

correlations among rating transition outcomes derived from stock

returns of the obligors. In computing firm-wide risk using this

distribution of its loan portfolio, the bank is most likely to understate its

risk because it ignores:

A: Spread risk.

Rating drift is in the transition matrix; the term structure of interest rates is

not a risk; the negative correlation reduces risk.

Q13. When your firm started trading fixed income securities, it used the

Black-Scholes model to price European options on fixed income

securities. You have a long position in a five-year European option on a

coupon bond that has eight years to maturity. If you were to conclude

that you are using the wrong model and should use the HJM one-factor

model, which of the following statements would be correct:

A: The value of your position would fall because Black-Scholes fails to capture

pull-to-par effect.

associated with derivatives positions that made headlines. Which

company suffered losses for reasons that have nothing to do with

operational risk?

A: Metallgesellschaft.

Q15. Consider a stock with an initial price of ＄100. Its price one year

from now is given by S＝100*exp(r), where the rate of return r is

normally distributed with a mean of 0.1 and a standard deviation of 0.2.

With 95% confidence, after rounding, S will be between:

A: ＄74.68 and ＄163.56

In(S/100) = r-N(0.1, 0.22) thus 0.1-1.96*0.2<In(S/100)<0.1+1.96*0.2.

0.1-1.96*0.2 is -0.292, so that 100Exp[-0.292] is ﹩74.68. 0.1+1.96*0.2 is

0.492, yielding ﹩163.56.

- case- ch11Uploaded byriki3
- 2013.FRM.1.testBankUploaded byMater Al Mutairi
- FRM Part - I Test PaperUploaded byKaran Chopra
- FRM VaR Preparation PristineUploaded bytns15786
- GARP FRM Practice Exams - 2015Uploaded byArijit Santra
- 2010-2015 FRM Practice ExamsUploaded bymveytsman
- Frm Sample Questions 2011Uploaded byShuvo Hasan
- Sample Frm Pracfrfqqtice ExamUploaded byArunava Banerjee
- FRM Quant Question BankUploaded byrajnish007
- Credit Risk(FRM Exam)Uploaded byChen Lee Kuen
- Frm Practice Exam 052711Uploaded byBruno F. Bessa
- Test FRMUploaded byankurgupta532156
- Minimising Risk Through Bunker HedgingUploaded byMercatus Energy Advisors
- FRM_2010_Practice_ExamUploaded byHumayun Ali
- 2006_FRM_Practice.pdfUploaded byElie Yabroudi
- 2012 Frm Practice ExamUploaded byCarlos Moura
- Cost of Funding Call OptionUploaded byTze Shao
- Jun 2005 - AnsUploaded byHubbak Khan
- Examen FrmUploaded byRobespierre Stalin
- FRM 2Uploaded bysadiakhn03
- FRM 2014 PracticeUploaded byKaval Hora
- Foreign Exchange and Risk ManagementUploaded byRuta Vyas
- packet3aUploaded bygarycwk
- tcasUploaded byimba
- Breaking BarriersUploaded byMadalina Ciuperca
- Financial InstrumentsUploaded byFarooq Vahidy
- Portfolio Management Services by SharekhanUploaded byKannan Prakash
- ReportUploaded bySonu Joiya
- 1.Should we fear derivaties.pdfUploaded byNobita Tu

- DIFC Special Purpose Company Regulations (2) 0Uploaded bytoses
- Accy272.Session11.Template.pp 682 720Uploaded byMohit
- cfpacket1spr16.pdfUploaded bySarath Chandra
- YOKO-AnnualReport2009 (2.7MB)Uploaded byras
- Corporate GovernanceUploaded bymoon1377
- Business Responsibility Report: Business Disclosure & Reporting Practices: An Empirical StudyUploaded byALOK KUMAR
- Organization and Environmental FactorsUploaded byDr.K.Baranidharan
- Final PreboardUploaded byJan Victor Adan
- Comfort letter.docxUploaded byAfrizar Pane
- The Revised Corporation Code of the Philippines Changes and Developments in Corporation Law by NBVUploaded bySam
- MPRA_paper_47117.pdfUploaded byRaymond
- Hybrid SecuritiesUploaded bybugsbugs
- Chap004 Cpa SolutionUploaded byboydjolof
- CA2001 updated to FinAct06Uploaded bysoudesh1983
- Chapter 4 - Analysis of Financial Statements (1)Uploaded bynoor_maalik
- Partnership Exercises Answers and ExplanationsUploaded byralphalonzo
- Wacc QuestionsUploaded bymuhammad farhan
- Should Rich but Losing Corporations Be LiquidatedUploaded bypjs15
- ACRA DH Interactive FinalUploaded byLee Wei Kang
- Conversion ProblemsUploaded byAce Maynard Dianco
- Ratio Analysis Bank ClassUploaded byAbul Bashar
- Answers Specimen Exam Paper F1 May10Uploaded byShane DeCash
- Managerial FinanceUploaded byminn4063
- ch07Uploaded byFerdinand Macol
- ch16_sm_leo_10e.docxUploaded byLSAT PREPAU1
- AU 30 June 2013 Model Special Purpose Financial StatementsUploaded byDobu Kolobingo
- Section 19 Business Combination and Goodwill 1Uploaded byAdrianne
- Bain CapitalUploaded byw_fib
- AffinBank.pdfUploaded byMior Azam (Mioraz)
- Corporate TaxationUploaded bylegalmatters