Question 1

A bank customer can use either a plain vanilla option or an option contract with volumetricflexibility to reduce the following risks:I. Market RiskII. Basis RiskIII. Operational Risk

Options :

A : I

B : II

C : I, II

D : II, III

Answer: C

Question 2

A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations.These CDOs can be used in a repurchase transaction at a 20% haircut. Starting with $100worth of CDOs, which one of the following four positions would completely utilize theavailable leverage?

Options :

A : The trader can buy $100 in CDO's, and repo the CDO-s to get back $100, less interest.

B : The trader can buy $100 in CDO's, and repo the CDO-s to get back $80, less interest.

C : The trader can buy $100 in CDO's, and repo the CDO-s to get back $60, plus interest.

D : The trader can buy $100 in CDO's, and repo the CDO-s to get back $20, plus interest.

Answer: B

Question 3

Returns on two assets show very strong positive linear relationship. Their correlationshould be closest to which of the following choices?

Options :

A : 15%

B : 45%

C : 60%

D : 100%

Answer: D

Question 4

Which type of risk does a bank incur on loans that are in the "pipeline", i.e loans that are inthe 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 5

Which one of the following four statements represents a possible disadvantage of using

total return swap to manage equity portfolio risks?

Options :

A :

Similar to the formal portfolio rebalancing strategy, the total return receiver needs to

modify the size of the trading position.

B :

The total return receiver needs to incur the transaction costs of establishing an equity

position.

C :

Similar to an equity forward position, the total return receiver does not get paid the

dividend.

D : The total return receiver does not have any voting rights.

Answer: C