Question 1

Following the Credit Suisse crisis in 2023, regulators and market participants werecaught off guard by the full write-down of CoCos. What was the immediate market impact andreaction to the unexpected write-down of Credit Suisse's Additional Tier 1 (AT1) bonds, and howdoes it compare to the market reaction to the Bear Stearns rescue in 2008?

Options :

A : value conservation in the decision-making process of the respective rescues.

B : consternation due to the perceived violation of the creditor hierarchy, in contrast to Bear

C : resolution provided, akin to the response to Bear Stearns' bailout.

D : market enthusiasm, as investors favored regulatory interventions that preserved their investments.

Answer: B

Question 2

A group of risk managers in a newly established asset management firm is assignedto implement the risk management process that includes three fundamentaldimensions: risk planning, risk budgeting and risk monitoring. The managers startby discussing the components of and the guidelines included in the risk plan. Whichof the following statements is correct?

Options :

A : on risk capital for each allocation taken independently.

B : that can cause aspects of the risk plan to fail.

C : be included in its strategic plan.

D : organization’s key dependencies on these goals.

Answer: B

Question 3

A portfolio manager at a US-based hedge fund has been searching for potentialreturn opportunities in the environment of declining global interest rates experiencedafter the global financial crisis (GFC) of 2007-2009. The manager identifies theexistence of a positive cross-currency basis between two currencies and notes thatthis positive basis has persisted since the GFC. What is the most appropriateexplanation for this persistence?

Options :

A : proprietary trading activities.

B : basis.

C : decline in the overall level of interest rates in the global economy.

D : typically eliminate counterparty risks.

Answer: B

Question 4

A large bank is reviewing its processes and procedures to manage operational risk in accordance with best practices established by the Basel Committee. In implementing the three lines of defense model, which of the following statements is correct?

Options :

A : The corporate operational risk function, as part of the second line of defense, should challenge risk inputs from business line managers.

B : The internal audit function should serve as the first line of defense and continually validate operational procedures used by the business lines.

C : The corporate operational risk function should serve as the third line of defense and validate model assumptions made by senior management.

D : Business line managers, as part of the first line of defense, should provide a credible challenge to the internal audit function.

Answer: A

Question 5

The CRO of a regional mortgage lender has asked an enterprise risk manager todevelop a set of policies and procedures for the firm’s operational risk reporting. Themanager considers appropriate policies for the governance of the firm’s riskreporting framework and also assesses how the firm should structure its risk reportsfor different stakeholder groups and organizational functions. Which of the followingwould be most appropriate for the manager to recommend?

Options :

A : changes to the firm’s risk exposures after risk reports are reviewed.

B : board of directors than it does to business line managers to support the board’s

C : information from each of the business units about operational risk exposures.

D : backward-looking indicators in its risk reporting.

Answer: C