Question 1

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

Question 2

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

Question 3

Which of the following decisions need to be made as part of laying down a system for calculating VaR:

I. The confidence level and horizon

II. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation

III. Whether the VaR is to be disclosed in the quarterly financial statements

IV. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10

days

Options :

A : I and III

B : II and IV

C : I, II and IV

D : All of the above

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

Whichof the following statements are true in relation to Historical Simulation VaR?

I. Historical Simulation VaR assumes returns are normally distributed but have fat tails

II. It uses full revaluation, as opposed to delta or delta-gamma approximations

III. Acorrelation matrix is constructed using historical scenarios

IV. It particularly suits new products that may not have a long time series of historical data available

Options :

A : II

B : II and III

C : I and IV

D : All of the above

E : A

Answer: A