Financial Risk and Regulation (FRR) Series 2016-FRR Dumps (V9.02): 2016-FRR Free Dumps (Part 2, Q41-Q80) for Reading

1. Except for the credit quality of the Credit Default Swap protection seller, the following relationship correctly approximates the yield on a risk-free instrument:

2. Which of the following factors can cause obligors to default at the same time?

I. Obligors may be harmed by exposures to similar risk factors simultaneously.

II. Obligors may exhibit herd behavior.

III. Obligors may be subject to the sampling bias.

IV. Obligors may exhibit speculative bias.

3. After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ return on equity for the bank, because the cash generated by the risk-transfer and the overall ___ of the bank's exposure to the risk.

4. When a credit risk manager analyzes default patterns in a specific neighborhood, she finds that defaults are increasing as the stigma of default evaporates, and more borrowers default. This phenomenon constitutes

5. ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies has an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. Theta Bank's risk department predicts the joint probability of default at 5%.

If the default risk of these mortgage companies were modeled as independent risks, what would be the probability of a cumulative $40 million loss from these two mortgage borrowers?

6. ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies have an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. Theta Bank’s risk department predicts the joint probability of default at 5%.

If the default risk of these mortgage companies were modeled as independent risks, the actual probability would be underestimated by:

7. A credit portfolio manager analyzes a large retail credit portfolio.

Which of the following factors will represent typical disadvantages of market-linked credit risk drivers?

I. Need to supply a large number of input parameters to the model

II. Slow computation speed due to higher simulation complexity

III. Non-linear nature of the model applicable to a specific type of credit portfolios

IV. Need to estimate a large number of unknown variable and use approximations

8. Which one of the following four metrics represents the difference between the expected loss and unexpected loss on a credit portfolio?

9. Gamma Bank is active in loan underwriting and securitization business, and given its collective credit exposure, it will be typically most interested in the following types of portfolio credit risk:

I. Expected loss

II. Duration

III. Unexpected loss

IV. Factor sensitivities

10. To quantify the aggregate average loss for the credit sub portfolios, a credit portfolio manager should use the following metric:

11. Which one of the following four alternatives lists the three most widely traded currencies on the global foreign exchange market, as of April 2007, in the decreasing order of market share? EUR is the abbreviation of the European euro, JPY is for the Japanese yen, and USD is for the United States dollar, respectively.

12. An asset manager for a large mutual fund is considering forward exchange positions traded in a clearinghouse system and needs to mitigate the risks created as a result of this operation.

Which of the following risks will be created as a result of the forward exchange transaction?

13. Which one of the following statements correctly identifies risks in foreign exchange forwards?

14. Which one of the four following statements regarding foreign exchange (FX) swap transactions is INCORRECT?

15. To hedge a foreign exchange exposure on behalf of a client, a small regional bank seeks to enter into an offsetting foreign exchange transaction. It cannot access the large and liquid interbank market open primarily to larger banks.

At which one of the following exchanges can the smaller bank trade the currency futures contracts?

I. The Tokyo Futures Exchange

II. The Euronext-Liffe Exchange

III. The Chicago Mercantile Exchange

16. Which one of the following four features is NOT a typical characteristic of futures contracts?

17. Which one of the following statements about futures contracts is correct?

I. Futures contracts are subject to the same risks as the underlying instruments.

II. Futures contracts have additional interest rate risk die to the future delivery date.

III. Futures contracts traded in a clearinghouse system are exposed to credit risk with numerous counterparties.

18. Which one of the following four options is NOT a typical component of a currency swap?

19. An options trader is assessing the aggregate risk of her currency options exposures. As an options buyer, she can potentially ___ lose more than the premium originally paid. As an option seller, however, she has a ___ risk on the contract and always receives a premium.

20. Which one of the following four statements correctly defines a non-exotic call option?

21. Which one of the following four statements correctly describes an American call option?

22. According to the largest global poll of foreign exchange market participants, which one of the following four global financial institutions was the most active participant in the global foreign exchange market?

23. In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the entire trading day.

Which of the following factors would most likely affect foreign exchange option values?

I. Change in the value of the underlying

II. Change in the perception of future volatility

III. Change in interest rates

IV. Passage of time

24. Which one of the following four statements about the relationship between exchange rates and option values is correct?

25. Which one of the following four statements does identify correctly the relationship between the value of an option and perceived exchange rate volatility?

26. Which one of the following four mathematical option pricing models is used most widely for pricing European options?

27. A risk manager is considering how to best quantify option price dynamics using mathematical option pricing models.

Which of the following variables would most likely serve as an input in these models?

I. Implicit parameter estimate based on observed market prices

II. Estimates of sensitivity of option prices to parameter changes

III. Theoretical option determination based on assumptions

28. Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a foreign exchange option?

29. Which one of the following four variables of the Black-Scholes model is typically NOT known at a point in time?

30. A risk manager analyzes a long position with a USD 10 million value. To hedge the portfolio, it seeks to use options that decrease JPY 0.50 in value for every JPY 1 increase in the long position.

At first approximation, what is the overall exposure to USD depreciation?

31. A risk manager has a long forward position of USD 1 million but the option portfolio decreases JPY 0.50 for every JPY 1 increase in his forward position.

At first approximation, what is the overall result of the options positions?

32. Which one of the following four statements correctly defines an option's delta?

33. In the United States, during the second quarter of 2009, transactions in foreign exchange derivative contracts comprised approximately what proportion of all types of derivative transactions between financial institutions?

34. Which of the following statements about the interest rates and option prices is correct?

35. To estimate a partial change in option price, a risk manager will use the following formula:

36. Which one of the following four statements on factors affecting the value of options is correct?

37. A risk manager is analyzing a call option on the GBP with a vega of 0.02.

When the perceived future volatility increases by 1%, the call option

38. Typically, which one of the following four option risk measures will be used to determine the number of options to use to hedge the underlying position?

39. Which one of the following four statements correctly defines chooser options?

40. Which one of the following four exotic option types has another option as its underlying asset, and as a result of its construction is generally believed to be very difficult to model?