Question 1

Which of the following statements are true:

I. Credit risk and counterparty risk are synonymous

II. Counterparty risk is the contingent risk from a counterparty's default in derivative transactions

III. Counterparty risk is the risk of a loan default or the risk from moneys lent directly

IV. The exposure at default is difficult to estimate for credit risk as it depends upon market movements

Options :

A : II and III

B : I and II

C : II

D : III and IV

Answer: C

Question 2

Which of the following decisions need to be made as part of laying down a system for calculating VaR:

I. The confidence level and horizon

II. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation

III. Whether the VaR is to be disclosed in the quarterly financial statements

IV. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10

days

Options :

A : I and III

B : II and IV

C : I, II and IV

D : All of the above

Answer: C

Question 3

For a hypotherical UoM, the number of losses in two non-overlapping datasets is 24 and 32 respectively. The Pareto tail parameters for the two datasets calculated using the maximum likelihood estimation method are 2 and 3. What is an estimate of the tail parameter of the combined dataset?

Options :

A : 2.57

B : 2.23

C : 3

D : Cannot be determined

Answer: A

Question 4

The frequency distribution for operational risk loss events can be modeled by which of the following

distributions:

I. The binomial distribution

II. The Poisson distribution

III. The negative binomial distribution

IV. The omega distribution

Options :

A : I, II and III

B : I and III

C : I, III and IV

D : I, II, III and IV

Answer: A

Question 5

According to Basel II's definition of operational loss event types, losses due to acts by third parties intended to defraud, misappropriate property or circumvent the law are classified as

Options :

A : Internal fraud

B : Execution delivery and system failure

C : External fraud

D : Third party fraud

Answer: C

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