Question 1

A portfolio manager at a US-based hedge fund has been searching for potentialreturn opportunities in the environment of declining global interest rates experiencedafter the global financial crisis (GFC) of 2007-2009. The manager identifies theexistence of a positive cross-currency basis between two currencies and notes thatthis positive basis has persisted since the GFC. What is the most appropriateexplanation for this persistence?

Options :

A : proprietary trading activities.

B : basis.

C : decline in the overall level of interest rates in the global economy.

D : typically eliminate counterparty risks.

Answer: B

Question 2

An analyst at a financial institution has been asked to assess the quality ofestimating credit VaR (CVaR) of a homogenous portfolio of firms (credits) using thesingle-factor model, under which default correlation varies with the firm’s beta to themarket factor. The analyst examines the portfolio under the following assumptions:• There are 1,000 firms (credits) in the portfolio.• Each firm represents 0.1% of the portfolio.• There is no idiosyncratic risk.• Loss given default is the same for each firm in the portfolio.Based on the information provided, which of the following observations, if made bythe analyst, would be correct regarding the application of the single-factor model and its parameters?

Options :

A : either 0% or 100%.

B : factor is low, for a given probability of default.

C : beta.

D : is typically higher than the probability of default of a firm in the portfolio.

Answer: A

Question 3

A risk analyst is reviewing his bank’s credit risk management policies. He notes that banks have limits on related-party financing decisions. His colleague agrees and correctly adds that:

Options :

A : the term single client only refers to a legal person.

B : acceptances and letters of credit should be factored into the risk exposure of a single client.

C : all banks have a limit of 10% of capital for a single client.

D : loan collateral should be included in exposure sizing using mark-to-market principles.

Answer: B

Question 4

The treasurer of a regional bank is concerned that the bank may not be properlycompensated for the services it provides to its depositors and asks a manager toassess a price for these services. The manager applies cost-plus pricing for alldepository services and uses the following data for pricing the automated tellermachine (ATM) service:• Operating expense per ATM visit: USD 0.25• Estimated overhead cost allocated per ATM visit: USD 0.35• Profit required per ATM visit: USD 0.05• The bank’s target return on capital: 15%What is the correct amount for the bank to charge per ATM visit according to the cost-plus pricing model?

Options :

A : D USD 0.74

B : B USD 0.65

C : A USD 0.30

D : C USD 0.70

Answer: B

Question 5

A bank employee has been manipulating suspense (transitory) accounts for a prolonged time, and this event was determined to be a significant operational incident. Which of the following time intervals in terms of the operational incident date is most likely to be the longest?

Options :

A : Date of reporting to date of accounting.

B : Date of occurrence to date of discovery.

C : Date of discovery to date of reporting.

D : Date of occurrence to date of reporting.

Answer: D

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