Question 1

Which one of the following four statements about hedging is INCORRECT?

Options :

A :

Traders can hedge their risks by taking an appropriate position in the underlying

instrument.

B : Traders can hedge their portfolio risks by taking a position in a different instrument.

C :

For a fully hedged portfolio, any changes in markets prices will typically produce

significant changes in the market value of the portfolio.

D :

A large number of hedge positions is generally required to match the underlying

transaction completely.

Answer: C

Question 2

The exercise for an American type option prior to expiration day is virtually certain in the

following case:

Options :

A : In the event of a high dividend for an in-the-money call option

B : In the event of a high dividend for an in-the-money put option

C : In the event of a low dividend for an in-the-money call option

D : In the event of a low dividend for an in-the-money put option

Answer: A

Question 3

US based Alpha Bank holds European corporate bonds and US inflation–indexed Treasury

notes in its investment portfolio. This investment portfolio is not exposed to changes in

which of the following?

Options :

A : Foreign exchange rates

B : Credit spread on the corporate bonds

C : Equity values

D : European interest rates

Answer: C

Question 4

Which of the following attributes of duration gap model typically cause criticism?

I. Basis risk

II. Errors in the linear model

III. Costs of immunization

IV. Constant nature of calculation

Options :

A : I, II

B : II, III, IV

C : I, II, III

D : I, III, IV

Answer: C

Question 5

Which one of the following four statements presents a challenge of using external loss

databases in the operational risk framework?

Options :

A : Use of benchmarked data reflects similar data collection standards.

B : External events are usually not of interest to senior management.

C :

If the external data is gathered from news sources, it may only reflect events that are

interesting to the press.

D : They provide a source of data on what operational loss events will occur.

Answer: C

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