QUESTION 157
A risk analyst is considering how to reduce the bank’s exposure to rising interest rates. Which of the following
strategies will help her achieve this objective?
I. Reducing the average repricing time of its loans
II. Increasing the average repricing time of its deposits
III. Entering into interest rate swaps
IV. Improving earnings capacity and increasing intermediated funds

QUESTION 158
Which of the following are among the main uses of risk reports?
I. Identification of exceptional situations that require managerial attention.
II. Display the relative risk among different trades.
III. Specify how RAROC will be maximized within the bank.
IV. Estimate the overall risk levels of the bank.

QUESTION 159
The pricing of credit default swaps is a function of all of the following EXCEPT:

QUESTION 160
Financial regulators in a European country are considering banning trading in highly complex derivative
instruments that are not settled through a centralized clearinghouse. This ban can result in:
I. The value of the country’s currency dropping
II. Counterparties involved in trading of these derivative instruments failing to fulfill their obligations
III. The business model relying on these instruments failing
IV. Certain activities becoming illegal

QUESTION 161
Mega Bank holds a $250 million mortgage loan portfolio, which reprices every 5 years at LIBOR + 10%. The
bank also has $150 million in deposits that reprices every month at LIBOR + 3%. What is the amount of Mega
Bank’s rate sensitive liabilities?

QUESTION 162
After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk
portions of the portfolio credit risk. This process ___ risk on the residual pieces of the credit portfolio, and as a
result it ___ return on equity for the bank.

QUESTION 163
The market risk manager of SigmaBank is concerned with the value of the assets in the bank’s trading book.
Which one of the four following positions would most likely be not included in that book?

QUESTION 164
Which one of the following four features is NOT a typical characteristic of futures contracts?

QUESTION 165
Which one of the following four statements correctly describes an American call option?

QUESTION 166
Over a long period of time DeltaBank has amassed a large equity option position. Which of the following risks
should be considered in this transaction?
I. Counterparty risk on long OTC option positions
II. Counterparty risk on short OTC option positions
III. Counterparty risk on long exchange-traded option positions
IV. Counterparty risk on short exchange-traded option positions

QUESTION 167
Bank Zilo has $2 million in cash and $10 million in loans coming due tomorrow with an expected default rate
of 1%. The proceeds will be deposited overnight. The bank owes $ 10 million on a securities purchase that
settles in two days and pays off $9 million in commercial paper in three days that is not expected to renew.
How much money should the bank plan to raise so as to avoid a liquidity problem?

QUESTION 168
Suppose Delta Bank enters into a number of long-term commercial and retail loans at fixed rate prevailing at
the time the loans are originated. If the interest rates rise:

QUESTION 169
Which one of the following four model types would assign an obligor to an obligor class based on the risk
characteristics of the borrower at the time the loan was originated and estimate the default probability based on
the past default rate of the members of that particular class?

QUESTION 170
The main building blocks of an operational risk framework include all of the following options EXCEPT:

QUESTION 171
Which one of the four following statements about back testing the VaR models is correct?
Back testing requires

QUESTION 172
Which one of the following statements is an advantage of using implied volatility as an input when calculating
VaR?

QUESTION 173
Mega Bank has $100 million in deposits on which it pays 3% interest, and $20 million in equity on which it
pays no interest. The loan portfolio of $120 million earns an average rate of 10%. If the rates remain the same,
what is the net interest income of Mega Bank?

QUESTION 174
According to a Moody’s study, the most important drivers of the loss given default historically have been all of
the following EXCEPT:
I. Debt type and seniority
II. Macroeconomic environment
III. Obligor asset type
IV. Recourse

QUESTION 175
Which of the following bank events could stress the bank’s liquidity position?
I. Maturing of bank debt
II. Repurchase agreements
III. Futures margins
IV. Staff turnover