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Question 1

Bank Sigma takes a long position in the oil futures market that requires a 2% margin, i.e.,

the bank has to deposit 2% of the value of the contract with the broker. The futures

contracts were priced at $50 per barrel (bbl) at inception, and rose by $5 to $55. The VaR

on the position is estimated to be $10. What is the return on this transaction on a risk

adjusted basis?

Options :

A : 50%

B : 10%

C : 500%

D : 20%

Answer: A

Question 2

Which one of the following four statements represents a possible disadvantage of using

total return swap to manage equity portfolio risks?

Options :

A :

Similar to the formal portfolio rebalancing strategy, the total return receiver needs to

modify the size of the trading position.

B :

The total return receiver needs to incur the transaction costs of establishing an equity

position.

C :

Similar to an equity forward position, the total return receiver does not get paid the

dividend.

D : The total return receiver does not have any voting rights.

Answer: C

Question 3

Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's expected loss be?

Options :

A : $500

B : $750

C : $1,000

D : $1,300

Answer: C

Question 4

10 basis points are equal to:

Options :

A : 10%

B : 1%

C : 0.1%

D : 0.01%

Answer: D

Question 5

An asset-sensitive bank will have a ___ cumulative gap and will benefit from ___ interest

rates.

Options :

A : Positive; dropping

B : Positive; rising

C : Negative; dropping

D : Negative; rising

Answer: B