Question 1

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 2

Under the internal ratings based approach for risk weighted assets, for which of the following parameters must each institution make internal estimates (as opposed to relying upon values determined by a national supervisor):

Options :

A : Probability of default

B : Effective maturity

C : Loss given default

D : Exposure at default

Answer: A

Question 3

Which of the following is a cause ofmodel risk in risk management?

Options :

A : Programming errors

B : Misspecification of the model

C : Incorrect parameter estimation

D : All of the above

Answer: D

Question 4

The risk that a counterparty fails to deliver its obligation upon settlement while having received the leg owed

to it is called:

Options :

A : Pre-settlement risk

B : Credit risk

C : Replacement risk

D : Settlement risk

Answer: D

Question 5

In respect of operational risk capital calculations, the Basel II accord recommends a confidence leveland time horizon of

Options :

A : 99.9% confidence level over a 10 day time horizon

B : 99% confidence level over a 10 year time horizon

C : 99% confidence level over a 1 year time horizon

D : 99.9% confidence level over a 1 year time horizon

Answer: D

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