QUESTION 66
What does a middle office do for a trading desk?

QUESTION 67
A cumulative accuracy plot:

QUESTION 68
Under the standardized approach to calculating operational risk capital, how many business lines are a bank’s activities divided into per Basel II?

QUESTION 69
Under the internal ratings based approach for risk weighted assets, for which of the following parameters must each institution make internal estimates (as opposed to relying upon values determined by a national supervisor):

QUESTION 70
Which of the following statements are true:
I. Pre-settlement risk is the risk that one of the parties to a contract might default prior to the maturity date or expiry of the contract.
II. Pre-settlement risk can be partly mitigated by providing for early settlement in the agreements between the counterparties.
III. The current exposure from an OTC derivatives contract is equivalent to its current replacement value.
IV. Loan equivalent exposures are calculated even for exposures that are not loans as a practical matter for calculating credit risk exposure.

QUESTION 71
Which of the following statements is true:
I. Basel II requires banks to conduct stress testing in respect of their credit exposures in addition to stress testing for market risk exposures II. Basel II requires pooled probabilities of default (and not individual PDs for each exposure) to be used for credit risk capital calculations

QUESTION 72
If A and B be two debt securities, which of the following is true?

QUESTION 73
Which of the following statements is true
I. If no loss data is available, good quality scenarios can be used to model operational risk II. Scenario data can be mixed with observed loss data for modeling severity and frequency estimates III. Severity estimates should not be created by fitting models to scenario generated loss data points alone IV. Scenario assessments should only be used as modifiers to ILD or ELD severity models.

QUESTION 74
The generalized Pareto distribution, when used in the context of operational risk, is used to model:

QUESTION 75
What would be the consequences of a model of economic risk capital calculation that weighs all loans equallyregardless of the credit rating of the counterparty?
I. Create an incentive to lend to the riskiest borrowers
II. Create an incentive to lend to the safest borrowers
III. Overstate economic capital requirements
IV. Understate economic capitalrequirements

QUESTION 76
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

QUESTION 77
There are two bonds in a portfolio, each with a marketvalue of $50m. The probability of default of the two bonds over a one year horizon are 0.03 and 0.08 respectively. If the default correlation is zero, what is the one year expected loss on this portfolio?

QUESTION 78
The Options Theoretic approach to calculating economic capital considers the value of capital as being equivalent to a call option with a strike price equal to:

QUESTION 79
An assumption regarding the absence of ratings momentum is referred to as:

QUESTION 80
The unexpected loss for a credit portfolio at a given VaR estimate is definedas:

QUESTION 81
The risk that a counterparty fails to deliver its obligation upon settlement while having received the leg owed to it is called:

QUESTION 82
For a bank using the advanced measurement approach to measuring operational risk, which of the following brings the greatest ‘model risk’ to its estimates:

QUESTION 83
If a borrower has a default probability of 12% over one year, what is the probability of default over a month?

QUESTION 84
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)

QUESTION 85
Random recovery rates in respectof credit risk can be modeled using:

QUESTION 86
An operational loss severity distribution is estimated using 4 data points from a scenario. The management institutes additional controls to reduce the severity of the loss if the risk is realized, and as a result the estimated losses from a 1-in-10-year losses are halved. The 1-in-100 loss estimate however remains the same.
What would be the impact on the 99.9th percentile capital required for this risk as a result of the improvement in controls?