Bank G has a 1-year VaR of USD 20 million at 99% confidence level while bank H has a 1-year VaR of USD 10 million at the same confidence level. Which bank is in a more risky position as measured by VaR?
A. Bank H is taking twice the risk of bank G as measured by VaR.
B. Bank G is taking twice the risk of bank H as measured by VaR.
C. Since the confidence levels are the same we cannot make any conclusions.
D. Both banks are equally risky since the measurements are with the same confidence level.
An asset-sensitive bank will have a ___ cumulative gap and will benefit from ___ interest rates.
A. Positive; dropping
B. Positive; rising
C. Negative; dropping
D. Negative; rising
Which one of the following four statements presents a challenge of using external loss databases in the operational risk framework?
A. Use of benchmarked data reflects similar data collection standards.
B. External events are usually not of interest to senior management.
C. If the external data is gathered from news sources, it may only reflect events that are interesting to the press.
D. They provide a source of data on what operational loss events will occur.
Which of the following attributes of duration gap model typically cause criticism?
I. Basis risk
II. Errors in the linear model
III. Costs of immunization
IV.
Constant nature of calculation
A.
I, II
B.
II, III, IV
C.
I, II, III
D.
I, III, IV
Which of the following reports have been suggested by the FDIC that banks should produce in addition to the usual probabilistic analysis and stress tests in order to gauge liquidity issues?
I. Cash flow gaps
II. Funding availability
III.
Critical assumptions used in credit projections
A.
I, II
B.
I, II, III
C.
I
D.
I, III
Which of the following are the most common methods to increase liquidity in stressed conditions?
I. Selling or securitizing assets.
II. Obtaining additional credit lines.
III.
Securing a better credit rating.
A.
I
B.
I, II
C.
I, II, III
D.
II, III
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?
A. $100 million
B. $150 million
C. $200 million
D. $250 million
Which one of the four following statements about the Risk Adjusted Return on Capital (RAROC) is correct? RAROC is the ratio of:
A. Risk to the profitability of a trading portfolio or a business unit within the bank.
B. Value-at-risk to the profitability of a trading portfolio or a business unit.
C. Profitability to the expected return of a trading portfolio or bank business unit.
D. Profitability to the risk of a trading portfolio or bank business unit.
Which one of the four following statements regarding minimum loss data standards is not correct?
A. The loss data entry must include the actual loss amount.
B. The loss data program must comprehensively capture all material activities.
C. The loss data entry should only include the date when the event was reported.
D. The loss data entry may include descriptive information about the drivers or causes of the loss event.
Which of the following assets on the bank's balance sheet has greatest endogenous liquidity risk?
A. A 2-year U.S treasury bond
B. A 1-week corporate loan with a AAA rated company
C. A 10-year U.S treasury bond
D. A 3-year subprime mortgage
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