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

Once the frequency and severity distributions for loss events have been determined, which of the following is an accurate description of the process to determine a full loss distribution for operational risk?

Options :

A : A firm wide operational risk distribution is generated by adding together the frequency and severity distributions

B : A firm wide operational risk distribution is generated using Monte Carlo simulations

C : A firm wide operational risk distribution is set to be equal to the product of the frequency and severity distributions

D : The frequency distribution alone forms the basis for the loss distribution for operational risk

Answer: B

Question 3

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 4

According to Basel II's definition of operational loss event types, losses due to acts by third parties intended to defraud, misappropriate property or circumvent the law are classified as

Options :

A : Internal fraud

B : Execution delivery and system failure

C : External fraud

D : Third party fraud

Answer: C

Question 5

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

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