According to Basel II what constitutes Tier 3 capital?
A. Subordinated debt issues that pay interest.
B. Debt capital that can only be used to support market risk in the trading book of the bank.
C. Preference shares that confer on issuers the right to defer payment of a fixed dividend.
D. Hybrid debt capital instruments that are similar to equity.
Why do regulatory standards impose formulaic capital calculations for all of the banks activities?
A. If the banks use different models it is difficult for a regulator to compare results across banks.
II. By imposing standardized calculations regulators can make sure that banks are not missing key risks in their calculations.
III. By imposing standardized calculations regulators can make sure that banks do not use capital calculations to game the banking regulation system.
B. I
C. I,II
D. II, III
E. I,II, III
An associate from the finance group has been identified as an operational risk coordinator (ORC) for her department. To fulfill her ORC responsibilities the associate will need to:
A. Provide main communication contact with operational risk department II. Provide main reporting contact with audit department III. Coordinate collection of key risk indicators in her area IV. Coordinate training and awareness activities in her area
B. I, II
C. II, III, IV
D. I, II, III
E. I, III, IV
Which one of the following four statements about economic capital of a bank is correct?
A. Economic capital measures how the economy is doing compared to the bank.
B. Economic capital reflects the possible losses that could occur based on the bank's own estimates of the risks it is taking.
C. Economic capital is determined by rules imposed by an external authority.
D. Economic capital is the present value of the earnings generated by the bank in the future.
A risk analyst at EtaBank wants to estimate the risk exposure in a leveraged position in Collateralized Debt Obligations. These particular CDOs can be used in a repurchase transaction at a 20% haircut. If the VaR on a $100 unleveraged position is estimated to be $30, what is the VaR for the final, fully leveraged position?
A. $20
B. $50
C. $100
D. $150
Which one of the following four attributes would likely help a trader using exchange-traded options to establish a leveraged position?
A. Higher degrees of exposure at less cash cost
B. Unlimited losses for long option positions
C. Option positions have the same credit risks as a margined long forward.
D. Option positions have the same cash risks as a margined short futures purchase.
Which one of the four following statements about a minimal loss threshold in operational loss data collection is incorrect?
A. A company can have differing operational loss data collection and reporting thresholds for different departments.
B. The operational loss data collection program has to capture all losses regardless of their size.
C. Setting an operational loss data collection threshold depends on the risk appetite of the firm and regulatory requirements it needs to meet.
D. The operational loss data collection program must include all material losses that are above minimal gross loss threshold.
To ensure good risk management which of the following should be true about the CRO role and function?
A. The CRO should receive compensation that is directly determined by the profit of the trading desk.
B. The CRO should report to the CEO or the Board of Directors.
C. The CRO should not be involved with the setting of risk limits.
D. To ensure efficient flow of information the CRO should not be independent of business units.
Gamma Bank has a significant number of retail customers and finds its balance sheet shape and structure difficult to manage. Which one of the following characteristics of a bank with wide retail operations is INCORRECT?
A. Banks with a wide retail base are typically driven by contractual obligations and not simply relationship considerations.
B. Attracting and retaining customers often involves offering retail products whose features are different from wholesale market products.
C. Pricing of retail products often has more to do with marketing considerations rather than prevailing market price.
D. The way retail customers behave in relation to the retail banking products they hold often results in the apparent contractual obligation of the parties providing a poor description of the actual nature of the obligations.
If a bank is long ?00 million pounds, short ?00 million in delta-equivalent pound options, and long ?00 million in pound-denominated stocks, what is the amount of pound exposure that would be shown in the aggregated risk reports?
A. ?00 million pounds
B. ?00 million pounds
C. ?00 million pounds
D. ?00 million pounds
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