QUESTION 140
When the cost of gold is $1,100 per bullion and the 3-month forward contract trades at $900, a commodity
trader seeks out arbitrage opportunities in this relationship. To capitalize on any arbitrage opportunities, the
trader could implement which one of the following four strategies?

QUESTION 141
Which one of the following four mathematical option pricing models is used most widely for pricing European options?

QUESTION 142
Which one of the following four statements on the seniority of corporate bonds is incorrect?

QUESTION 143
DeltaFin wants to develop a control scoring method for its RCSA program. Which of the following statements
regarding scoring methods are correct?
I. DeltaFin can develop a control scoring method that assesses both the design and the performance of the
control.
II. DeltaFin can combine the design and performance scores for each control to produce an overall control
effectiveness score.
III. DeltaFin can use the control performance scores to compute an overall risk severity score.
IV. DeltaFin can determine its own appropriate control scoring method.

QUESTION 144
Why do regulatory standards impose formulaic capital calculations for all of the banks activities?
I. If the banks use different models it is difficult for a regulator to compare results across banks.
II. By imposing standardized calculations regulators can make sure that banks are not missing key risks in
their calculations.
III. By imposing standardized calculations regulators can make sure that banks do not use capital calculations
to game the banking regulation system.

QUESTION 145
The main building blocks of an operational risk framework include all of the following options EXCEPT:

QUESTION 146
Beta Insurance Company is only allowed to invest in investment grade bonds. To maximize the interest income, Beta Insurance Company should invest in bonds with which of the following ratings?

QUESTION 147
Which one of the following statements is an advantage of using implied volatility as an input when calculating VaR?

QUESTION 148
Suppose that a regulator deems all corporate debt to have the same risk level. Which of the following behavior
of banks would be an example of regulatory arbitrage?

QUESTION 149
For a bank a 1-year VaR of USD 10 million at 95% confidence level means that:

QUESTION 150
To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements:
I. Bonds
II. Marketable loans
III. Credit card loans

QUESTION 151
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?

QUESTION 152
A credit risk analyst is evaluating factors that quantify credit risk exposures. The risk that the borrower would fail to make full and timely repayments of its financial obligations over a given time horizon typically refers to:

QUESTION 153
Which of the following statements about endogenous and exogenous types of liquidity are accurate?
I. Endogenous liquidity is the liquidity inherent in the bank’s assets themselves.
II. Exogenous liquidity is the liquidity provided by the bank’s liquidity structure to fund its assets and maturing
liabilities.
III. Exogenous liquidity is the non-contractual and contingent capital supplied by investors to support the bank
in times of liquidity stress.
IV. Endogenous liquidity is the same as funding liquidity.

QUESTION 154
AlphaBank’s management is evaluating how changes in its business environment could materially impact risk categories. As a result, bank’s management decides to implement the structure, which facilitates the discussion in an integrative context, spanning market, credit, and operational risk factors, and encourages transparency and communication between risk disciplines. Which one of the following four approaches should the management choose to achieve this strategic goal?

QUESTION 155
A portfolio consists of two floating rate bonds and one fixed rate bond.

Based on the information below, modified duration of this portfolio is

QUESTION 156
All of the following performance statistics typically benefit country’s creditworthiness EXCEPT:

QUESTION 157
James Johnson manages a bond portfolio with all investment grade bonds. Adding which of the following
bonds would minimize the credit risk of his portfolio?

QUESTION 158
A credit risk analyst is evaluating factors that quantify credit risk exposures. The risk that the borrower would
fail to make full and timely repayments of its financial obligations over a given time horizon typically refers
to:

QUESTION 159
Mega Bank holds a $250 million mortgage loan portfolio, which reprices every 5 years at LIBOR + 10%. The
bank also has $150 million in deposits that reprices every month at LIBOR + 3%. What is the amount of Mega
Bank’s rate sensitive liabilities?

QUESTION 160
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. The loan also has an annual expected default rate of 2%, and loss given default at
50%. In this case, what will the bank’s exposure at default (EAD) be?

QUESTION 161
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

QUESTION 162
Which one of the following four statements correctly defines chooser options?