Question 1

Which of the following statements is most accurate regarding risks incurred by retail lenders?

Options :

A : Refinancing a mortgage when rates decrease is an example of asset valuation risk.

B : Reputation risk is more of a concern for the borrower rather than the lender.

C : Credit risk relates to the potential for a lender to default on their obligation.

D : Business risk relates to the day-to-day operational risks of the business.

Answer: A

Question 2

Which of the following reasons is least likely a consideration for regulators when imposing fines on financial institutions against financial breaches and violations?

Options :

A : To cover the cost of litigation.

B : To deter other firms against manipulative bank practices.

C : To ensure that fines cover at least the benefits of breaches.

D : To signal to other firms to change their compliance practices.

Answer: A

Question 3

Time steps that enter into the calculation of the number of days in the margin period of risk include all of the following except:

Options :

A : valuation/margin call.

B : settlement.

C : close-out and re-hedge.

D : posting collateral.

Answer: D

Question 4

Which of the following statements about portfolio losses and default correlation are most likely correct?I. Increasing default correlation decreases senior tranche values but increases equity tranche values.II. At high default rates, increasing default correlation decreases mezzanine bond prices.

Options :

A : I only.

B : Both I and II.

C : II only.

D : Neither I nor II.

Answer: A

Question 5

Which of the following statements regarding the differences between Basel I, Basel II.5, and the Fundamental Review of the Trading Book (FRTB) for market risk capital calculations is incorrect?

Options :

A : FRTB requires the calculation of expected shortfall with a 97.5% confidence level.

B : Both Basel I and Basel II.5 require calculation of VaR with a 99% confidence level.

C : FRTB requires adding a stressed VaR measure to complement the expected shortfall calculation.

D : The 10-day time horizon for market risk capital proposed under Basel I incorporates a recent period of time, which typically ranges from one to four years.

Answer: C