yhMultiple choices questions.

Sessions 5 and 6

Question 46
If you consider the breakdown of the portfolio regulated by Basel 2, it is possible to affirm that:
a. Corporate covers companies with more than 50 million euro liabilities, SMEs companies
with liabilities ranging between 5 and 50 million euro, retail companies with liabilities less
than 5 million euro liabilities
b. Corporate covers companies with more than 50 million euro sales, SMEs companies with
sales ranging between 5 and 50 million euro, retail companies with sales less than 5 million
euro liabilities
c. Corporate covers companies with more than 50 million euro sales, SMEs companies with
sales ranging between 5 and 50 million euro, retail individuals with salaries less than 5
million euro liabilities
d. Corporate covers companies with less than 50 million euro sales, SMEs companies with
sales ranging between 5 and 50 million euro, retail companies with sales less than 5 million
euro liabilities

Question 47
Let’s consider underwriting for 1 billion euro corporate bonds issued by BASF. This amount has to
be considered for Basel 2 portfolio:
a. Specialized lending
b. FIG
c. Governmental entities
d. Corporates

Question 48
Let’s consider successful dealing on Allianz shares for 1 billion euro. The amount has to be
considered for Basel 2 portfolio:
a. Equity
b. FIG
c. Corporate
d. None of them

Question 49
Let’s consider direct private equity on Allianz shares for 1 billion euro. The amount has to be
considered for Basel 2 portfolio:
a. Equity
b. FIG
c. Specialized lending
 d. None of them
Question 50
To calculate the PD, let’s consider the A rating class with the following deals: 1.000; 500; 2.000;
1.500; 800. If the default happens for the third deal and the EAD is 200, it means the PD of the A
rating class is:
a. 3,45%
b. 10%
c. 34,48%
d. 3,11%

Question 51
The range of variance for the PD and the LGD set by Basel 2 states that:
a. The PD can vary between 3% and 30% while the LGD between 0% and 100%
b. The PD can vary between 0,3% and 30% while the LGD between 0% and 100%
c. The PD can vary between 0,03% and 30% while the LGD between 0% and 100%
d. The PD can vary between 0,03% and 100% while the LGD between 0,03% and 30%

Question 52
If the PD of the AA+ rating class of a certain bank is 0,05%, it means that:
a. The proportion between of the sum of the defaults and the sum of the EAD of the AA+
customers is equal to 0,05%
b. The proportion between the sum if the EAD of the AA+ defaulted assets and the sum of
AA+ assets is equal to 0,05%
c. The proportion between the sum if the EAD of the AA+ defaulted assets and the sum of
AA+ defaulted assets is equal to 0,05%
d. The proportion between the sum if the EAD of the defaulted assets and the sum of AA+
defaulted assets is equal to 0,05%

Question 53
Which of the following collaterals is not eligible considering Basel 2 rules:
a. A pledge on A- securities
b. A pledge on a hotel building belonging to an unrated company
c. A personal guarantee given by the CEO of AAA company
d. A personal guarantee given by an A+ investment bank

Question 54
Which of the following collaterals is eligible considering Basel 2 rules:
 a. A pledge on securities rated A+ by Moody’s and BB+ by S&P
b. A pledge on a plant belonging to a B- company
c. A personal guarantee given by a BBB- investment bank
d. A personal guarantee issued as an insurance contract by a US unrated insurance company

Question 55
The calculation of the RR for each collateral has to consider:
a. The forecast of the average time to recover the collateral, as well as an estimation of the
average costs and of the average rate of success
b. The average time to recover the collateral, as well as the average costs and the average rate
of success in the past
c. The proportion between the amount of cash recovered and the sum of the EAD in the past
d. The proportion between the amount of cash recovered net costs and the sum of the EAD in
the past

Question 56
To calculate the EAD, let’s consider the BBB rating class with the following deals: 2.000; 1.500;
2.500; 500; 900. If the default happens for the first deal and the EAD is 800, it means the EAD of
the BBB rating class is:
a. 10,81%
b. 40,00%
c. 27,03%
d. 75,00%

Question 57
If we consider the use of collaterals for Basel 2, it is possible to affirm that:
a. While we can use personal guarantees in all the three approaches, financial and non-
financial collaterals can be used only in the advanced approach
b. While we can use personal guarantees in the foundation and in the advanced approaches,
financial and non-financial collaterals can be used only in the advanced approach
c. While we can use personal guarantees only in the advanced approach, financial and non-
financial collaterals can be used only in the standard approach
d. While we can use personal guarantees in all the three approaches, financial and non-
financial collaterals can be used only in the IRB approaches.

Question 58
For Basel 2 rules, the value of “w” can vary:
a. Between 14,44% and 248%
 b. Between 14,44% and 248% in the advanced approach while between 0% and 150% for
standard and foundation approach
c. Between 0% and 150% in the standard approach while between 14,44% and 248% in IRB
approaches
d. Between 20% and 150% in the standard approach while between 14,44% and 248% in IRB
approaches.

Question 59
Let’s consider a bank using standard approach. If the bank underwrites 500 million euro A- bonds
issued by Generali, it means the RWA is:
a. 500 million euro
b. 250 million euro
c. 0
d. 100 million euro

Question 60- we need to consider the riskiness of the seller not of the customer
Let’s consider a bank using standard approach. If the bank give 500 million euro loans to an unrated
company and the bank buys a CDS from a AAA investment bank, the regulatory capital impact is:
a. 100 million euro
b. 8 million euro
c. 40 million euro
d. 0

Question 61
Let’s consider a bank using standard approach. If the bank give 1 billion euro loans to an unrated
company and the bank buys a CDS from a AAA State Agency, the regulatory capital saving thanks
to the personal guarantee is:
a. 104 million euro
b. 120 million euro
c. 54 million euro
d. 80 million euro

Question 62
You have to consider the balance sheet of a bank, where 100 million euro are on cash, 200 million
euro are invested in loans to unrated corporates and 300 million euro are invested in BBB Gov
Bonds. The regulatory capital required is:
a. 28 million euro
b. 40 million euro
c. 36 million euro
 d. 600 million euro

Question 63
You have to consider the balance sheet of a bank whereas 200 million euro are A+ corporates bonds
(yield 1,5%), 200 million euro are defaulted loans to FIG (yield 0,5%) and 200 million euro are
loans to supranational institutions (yield 1%). If the cost on liabilities is 2 million euro and
operating cost 1 million, it means:
a. The margin of the bank is 3 million while the regulatory capital is 35,2 million euro
b. The margin of the bank is 3 million while the regulatory capital is 32 million euro
c. The margin of the bank is 4 million euro while the regulatory capital is 32 million euro
d. The margin of the bank is 3 million while the regulatory capital is 40 million euro

Question 64
Let’s consider a bank using the standard approach. The balance sheet has four different assets: loans
to a AAA investment bank; A+ Gov bonds; defaulted loans to AA corporate; unrated shares of
corporate, guaranteed by a AAA insurance company. The four weights are:
a. 20%; 100%; 150%; 0%
b. 20%; 20%; 150%; 20%
c. 0%; 20%; 150%; 20%
d. 20%; 20%; 150%; 0%

Question 65
If you consider the formula for the foundation approach to calculate “w”, the fixed values are the
following:
a. 45% for LGD, which becomes 75% for equity only; 75% for EAD which becomes 90% for
equity only; 2,5 years for maturity
b. 45% for LGD, which becomes 90% for equity only; 75% for EAD which becomes 90% for
equity only; 2,5 years for maturity
c. 45% for LGD, which becomes 75% for equity only; 75% for EAD which becomes 90% for
equity only; 3,5 years for maturity
d. 75% for LGD, which becomes 90% for equity only; 75% for EAD which becomes 90% for
equity only; 2,5 years for maturity

Question 66
Let’s consider a bank using the advanced approach and where the risk free rate is 2,50% and the
cost of equity is 16%. If the bank gives a 1 billion euro loan to a A+ company (with PD=0,50% and
w=69,61%) with EAD=75% and the market value of collateral is 1,2 billion with a 0,4 recovery
rate, it means the pricing of the loan is:
a. 3,62%
 b. 3,58%
c. 3,13%
d. 3,78%

Question 67
Let’s consider a bank using the foundation approach and where the risk free rate is 2,50% and the
cost of equity is 25%. If the bank gives a 1 billion euro loan to a A+ company (with PD=0,50% and
w=69,61%) with EAD=75% and the market value of collateral is 1,2 billion with a 0,4 recovery
rate, it means the pricing of the loan is:
a. 4,13%
b. 4,08%
c. 3,58%
d. 4,28%

Question 68
Let’s consider a bank using the foundation approach and where the risk free rate is 1,50% and the
cost of equity is 14%. If the bank gives a 1 billion euro loan to a BBB- company (with PD=1,50%
and w=105,59%) with EAD=75% and the bank applies a positive delta of 0,50%, it means the
pricing of the loan is:
a. 3,38%
b. 2,88%
c. 3,58%
d. 3,88%

Question 69
Let’s consider a bank using the foundation approach where the risk free rate is 1,50% and the cost
of equity is 14%. If the bank gives a 1 billion euro loan to a BBB- company (with PD=1,50% and
w=105,59%) with EAD=75% and the bank buys a AAA CDS, it means the pricing of the loan is:
a. 3,38%
b. 1,68%
c. 2,18%
d. 1,74%

Question 70
Which of the following definitions of “expected” or “target” price in the pricing equation is correct?
a. (Interest rate risk free) + (cost of equity * 8% * w) – (delta interest rate)
b. (Interest rate risk free) + (cost of equity * 8% * w) * (delta interest rate)
c. (Interest rate risk free) + (cost of equity * 8%) + (delta interest rate)
d. (Interest rate risk free) + (cost of equity * 8% * w) + (delta interest rate)
 Solutions

46. B
47. D
48. D
49. A
50. A
51. C
52. B
53. C
54. B
55. B
56. B
57. A
58. C
59. B
60. B
61. D
62. A
63. B
64. B
65. A
66. B
67. A
68. D
69. B
70. D