Which one of the following four metrics represents the difference between the expected loss and unexpected loss on a credit portfolio?

A. Credit VaR

B. Probability of default

C. Loss given default

D. Modified duration

Which of the following statements about the interest rates and option prices is correct?

A. If rho is positive, rising interest rates increase option prices.

B. If rho is positive, rising interest rates decrease option prices.

C. As interest rates rise, all options will rise in value.

D. As interest rates fall, all options will rise in value.

Which one of the following four exotic option types has another option as its underlying asset, and as a result of its construction is generally believed to be very difficult to model?

A. Spread options

B. Chooser options

C. Binary options

D. Compound options

Changes to which one of the following four factors would typically not increase the cost of credit?

A. Increasing inflation rates in a country.

B. Increase in consumption of goods and services.

C. Higher risk premium on a fixed income instrument.

D. Higher return earned on alternative investments.

Which one of the following four option types has two strike prices?

A. Asian options

B. American options

C. Range options

D. Shout options

An options trader for a large institutional investor takes a long equity option position. Which of the following risks need to be considered when taking this position?

I. All the risks of underlying equities

II. Perceived volatility changes

III. Future dividends yields

IV.

Risk-free interest rates

A.

I, II

B.

II, III

C.

III, IV

D.

I, II, III, IV

Which one of the following four statements regarding the basic Net Interest Income model is INCORRECT?

A. Assets and liabilities have the same interest rate sensitivities.

B. Effective repricing date can be different than contractual repricing.

C. The amount of intermediated funds can be a function of interest rate levels.

D. Net interest income risk does not address the impact of changing interest rates on bank equity value.

An asset and liability manager for a large financial institution has to recognize that retail products ___ include embedded options, which are often not rationally exercised, while wholesale products ___ carry penalties for repayment or include rights to terminate wholesale contracts on very different terms than are common in retail products.

A. Frequently; typically

B. Hardly ever; typically

C. Frequently; rarely

D. Hardly ever; rarely

According to Basel II what constitutes Tier 3 capital?

A. Subordinated debt issues that pay interest.

B. Debt capital that can only be used to support market risk in the trading book of the bank.

C. Preference shares that confer on issuers the right to defer payment of a fixed dividend.

D. Hybrid debt capital instruments that are similar to equity.

Which one of the following market risk measures evaluates the bank's earnings sensitivity?

A. Cash flow stress testing

B. Large exposure risk identification

C. Earnings-at-risk stress testing

D. Value-at-risk back testing