NO.96 Which of the following formulae describes CVA (Credit Valuation Adjustment)? All acronyms have their usual meanings (LGD=Loss Given Default, ENE=Expected Negative Exposure, EE=Expected Exposure, PD=Probability of Default, EPE=Expected Positive Exposure, PFE=Potential Future Exposure)

NO.97 What does a middle office do for a trading desk?

NO.98 Which of the following statements is true:

NO.99 An investor enters into a 5-year total return swap with Bank A, with the investor paying a fixed rate of 6% annually on a notional value of $100m to the bank and receiving thereturns of the S&P500 index with an identical notional value. The swap is reset monthly, ie the payments are exchanged monthly. On Jan 1 of the fourth year, after settling the last month’s payments, the bank enters bankruptcy. What is the legal claim thatthe hedge fund has against the bank in the bankruptcy court?

NO.100 The probability of default of a security over a 1 year period is 3%. What is the probability that it would not have defaulted at theend of four years from now?

NO.101 A bank expects the error rate in transaction data entry for a particular business process to be 0.005%. What is the range of expected errors in a day within +/- 2 standard deviations if there are 2,000,000 such transactions each day?

NO.102 When modeling severity of operational risk losses using extreme value theory (EVT), practitioners often use which of the following distributions to model loss severity:
I. The ‘Peaks-over-threshold’ (POT) model
II. Generalized Pareto distributions
III. Lognormal mixtures
IV. Generalized hyperbolic distributions

NO.103 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

NO.104 Which of the following are a CRO’s responsibilities:
I. Statutory financial reporting
II. Reporting to the audit committee
III. Compliance with risk regulatory standards
IV. Operational risk

NO.105 Under the standardized approach to calculating operational risk capital under Basel II, negative regulatory capital charges for any of the business units:

NO.106 For creditrisk calculations, correlation between the asset values of two issuers is often proxied with:

NO.107 Which of the following should be included when calculating the Gross Income indicator used to calculate operational risk capital under the basic indicator and standardized approaches underBasel II?

NO.108 Which of the following statements are correct:
I. A training set is a set of data used to create a model, while a control set is a set of data is used to prove that the model actually works II. Cleansing, aggregating or ensuring data integrity is a task for the IT department, and is not a risk manager’s responsibility III. Lack of information on the quality of underlying securities and assets was a major cause of the collapse in the CDO markets during the credit crisis that started in 2007 IV. The problem of lack of historical data can be addressed reasonably satisfactorily by using analytical approaches

NO.109 Once the frequency and severity distributions for loss events have been determined, which of the following is an accurate description of the process to determine a full loss distribution for operational risk?

NO.110 As the persistence parameter under EWMA is lowered, which of the following would be true:

NO.111 When building a operational loss distribution by combining a loss frequency distribution and a loss severity distribution, it is assumed that:
I. The severity of losses is conditional upon the numberof loss events
II. The frequency of losses is independent from the severity of the losses III. Both the frequency and severity of loss events are dependent upon the state of internal controls in the bank

NO.112 The unexpected loss for a credit portfolio at a given VaR estimate is definedas:

NO.113 Which of the following is not a tool available to financial institutions for managing credit risk:

NO.114 A portfolio has two loans, A and B, each worth $1m. The probability of default of loan A is 10% and that of loan B is 15%. Theprobability of both loans defaulting together is 1%. Calculate the expected loss on the portfolio.

NO.115 When considering a request for a loan from a retail customer, which of the following factors is relevant for a bank to consider:

NO.116 If the odds of default are 1:5, what is the probability of default?

NO.117 Which of the following situations are not suitable for applying parametric VaR:
I. Where the portfolio’s valuation is linearlydependent upon risk factors II. Where the portfolio consists of non-linear products such as options and large moves are involved III. Where the returns of risk factors are known to be not normally distributed

NO.118 Which of the following objectives are targeted by rating agencies when assigning ratings:
I. Ratings accuracy
II. Ratings stability
III. High accuracy ratio (AR)
IV. Ranked ratings