Question 1

Which type of risk does a bank incur on loans that are in the "pipeline", i.e loans that are in

the process of origination but not yet originated?

Options :

A : Interest rate risk and credit risk

B : Interest rate risk only

C : Credit Risk only

D : The bank does not incur any risk since the loan is not yet originated

Answer: A

Question 2

Returns on two assets show very strong positive linear relationship. Their correlation

should be closest to which of the following choices?

Options :

A : 15%

B : 45%

C : 60%

D : 100%

Answer: D

Question 3

A key function of treasuries in commercial/retail banks is:I. To manage the interest margin of the banks.II. To focus on underwriting risk.III. To ensure strong earnings.IV. To increase profit margins.

Options :

A : I

B : II

C : II, III

D : III, IV

Answer: A

Question 4

A risk analyst at EtaBank wants to estimate the risk exposure in a leveraged position inCollateralized Debt Obligations. These particular CDOs can be used in a repurchasetransaction at a 20% haircut. If the VaR on a $100 unleveraged position is estimated to be$30, what is the VaR for the final, fully leveraged position?

Options :

A : $20

B : $50

C : $100

D : $150

Answer: D

Question 5

For which one of the following four reasons do corporate customers use foreign exchange

derivatives?

I. To lock in the current value of foreign-denominated receivables

II. To lock in the current value of foreign-denominated payables

III. To lock in the value of expected future foreign-denominated receivables

IV. To lock in the value of expected future foreign-denominated payables

Options :

A : II

B : I and IV

C : II and III

D : I, II, III, IV

Answer: D