Question 1

Under thebasic indicator approach to determining operational risk capital, operational risk capital is equal to:

Options :

A : 15% of the average gross income (considering only the positive years) of the past three years

B : 15% of the average net income (considering only thepositive years) of the past three years

C : 25% of the average gross income (considering only the positive years) of the past three years

D : 15% of the average gross income of the past five years

Answer: A

Question 2

Which of the following statements are true:

I. Credit risk and counterparty risk are synonymous

II. Counterparty risk is the contingent risk from a counterparty's default in derivative transactions

III. Counterparty risk is the risk of a loan default or the risk from moneys lent directly

IV. The exposure at default is difficult to estimate for credit risk as it depends upon market movements

Options :

A : II and III

B : I and II

C : II

D : III and IV

Answer: C

Question 3

Which of the following is not a limitation of the univariate Gaussian model to capture the codependence structure between risk factros used for VaR calculations?

Options :

A : The univariate Gaussian model fails to fit to the empirical distributions of risk factors, notably their fat tails and skewness.

B : Determining the covariance matrix becomes an extremely difficult task as the number of risk factors increases.

C : It cannot capture linear relationships between risk factors.

D : A single covariance matrix is insufficient to describe the fine codependence structure among risk factors as non-linear dependencies or tail correlations are not captured.

Answer: C

Question 4

A bullet bond and an amortizing loan are issued at the same time with the same maturity and with the same principal. Which of these would have a greater credit exposure halfway through their life?

Options :

A : Indeterminate with the given information

B : They would have identical exposure half way through their lives

C : The amortizing loan

D : The bullet bond

Answer: D

Question 5

The VaR of a portfolio at the 99% confidence level is $250,000 when mean return is assumed to be zero. If the assumption of zero returns is changed to an assumption of returns of $10,000, what is the revised VaR?

Options :

A : 260000

B : 240000

C : 273260

D : 226740

Answer: B