Online Access Free 2016-FRR Exam Questions

From the bank's point of view, repricing the retail debt portfolio will introduce risks of fluctuations in:
I. Duration
II. Loss given default
III. Interest rates
IV. Bank spreads

• A.I, II
• B.III, IV
• C.I
• D.II

A bank customer chooses a mortgage with low initial payments and payments that increase over time because the customer knows that she will have trouble making payments in the early years of the loan. The bank makes this type of mortgage with the same default assumptions uses for ordinary mortgages, thus underestimating the risk of default and becoming exposed to:

• A.Adverse selection
• B.Moral hazard
• C.Banking speculation
• D.Sampling bias

An asset manager for a large mutual fund is considering forward exchange positions traded in a clearinghouse system and needs to mitigate the risks created as a result of this operation. Which of the following risks will be created as a result of the forward exchange transaction?

• A.Credit risk
• B.Exchange rate risk
• C.Exchange rate and credit risk
• D.Exchange rate and interest rate risk

Asset and liability management is typically concerned with all of the following activities:
I). Maintaining the desired liquidity structure of the bank.
II). Managing the factors affecting the structure and composition of a bank's balance sheet.
III). Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer price.
IV). Focusing on the circumstances impacting the stability of income the bank generates over time.

• A.III, IV
• B.I, II, IV
• C.II, III
• D.I

Which one of the following statements is an advantage of using implied volatility as an input when calculating VaR?

• A.Loss probabilities from the standard normal distribution are used to compute implied volatilities, which makes it easy to compute the.
• B.Current market data is used to determine implied volatilities, which makes them forward looking measures
• C.Implied volatility assumes volatilities are constant which makes it easy to implement in models.
• D.Implied volatilities are better at predicting actual volatilities