Question 1

For a bank a 1-year VaR of USD 10 million at 95% confidence level means that:

Options :

A : There is a 5% chance that the bank would lose less than USD 10 million in a year.

B : There is a 5% chance that the bank would lose more than USD 10 million in a year.

C : There is a 5% chance that the worst loss would be USD 10 million in a year.

D : There is a 5% chance that the least loss would be USD 10 million in a year.

Answer: B

Question 2

A credit rating analyst wants to determine the expected duration of the default time for a new three-year loan, which has a 2% likelihood of defaulting in the first year, a 3% likelihood of defaulting in the second year, and a 5% likelihood of defaulting the third year. What is the expected duration for this three-year loan?

Options :

A : 1.5 years

B : 2.1 years

C : 2.3 years

D : 3.7 years

Answer: B

Question 3

To improve the culture and awareness of the operational risk, Gamma Bank's CRO

decides to promote three activities within her organization. Which one of the following four

activities is NOT typically used to develop an operational risk framework?

Options :

A : Marketing

B : Planning

C : Training

D : Auditing

Answer: A

Question 4

Which type of risk does a bank incur on loans that are in the "pipeline", i.e loans that are in

the process of origination but not yet originated?

Options :

A : Interest rate risk and credit risk

B : Interest rate risk only

C : Credit Risk only

D : The bank does not incur any risk since the loan is not yet originated

Answer: A

Question 5

A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss than if the market had remained stable. However, if the market drops, the customer will benefit from the incorrect accounting and gain from this trade. This trading scenario can serve as an example that

Options :

A : Market risk in this transaction can magnify operational risk.

B : Credit risk in this transaction can magnify operational risk.

C : Liquidity risk in this transaction can magnify operational risk.

D : Strategic risk in this transaction can magnify operational risk.

Answer: A

Confidently Practice Online with Free 2016-FRR Exam Cram

Buying Options: