Which one of the following four statements regarding the basic Net Interest Income model is INCORRECT?
A. Assets and liabilities have the same interest rate sensitivities.
B. Effective repricing date can be different than contractual repricing.
C. The amount of intermediated funds can be a function of interest rate levels.
D. Net interest income risk does not address the impact of changing interest rates on bank equity value.
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
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?
A. $2 million per year
B. $5 million per year
C. $9 million per year
D. $12 million per year
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 one of the four following statements about Basis point values is correct?
Basis point value:
A. Is a widely used statistical tool used to measure market risk.
B. Refers to the change in the value of a fixed income position for a very small change yields.
C. Is a risk sensitivity measure used to measure the point spread risk in the banking book.
D. Provides a quick estimate of the sensitivity of the bank's banking book, to increasing volatility in interest rates.
A bank has a Var estimate of $100 million. It is considering a new transaction which has a correlation of
0.35 with the current portfolio and a standalone VaR estimate of $5 million. What would be the new VaR for the bank if it carried out the transaction?
A. $105 million
B. $101.86 million
C. $100.22 million
D. $ 213.67 million
A risk associate evaluating his current portfolio of assets and liabilities wants to determine how sensitive this portfolio is to changes in interest rates. Which one of the following four metrics is typically used for this purpose?
A. Modified duration
B. Duration of default
C. Effective duration
D. Macaulay duration
Which of the following factors are typically included in standard operational risk definitions?
A. Human errors
II. Process failure
III. Systems failure
IV. Unexpected events
B. I and II
C. I and IV
D. II and III
E. I, II and III
A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss than if the market had remained stable. However, if the market drops, the customer will benefit from the incorrect accounting and gain from this trade. This trading scenario can serve as an example that
A. Market risk in this transaction can magnify operational risk.
B. Credit risk in this transaction can magnify operational risk.
C. Liquidity risk in this transaction can magnify operational risk.
D. Strategic risk in this transaction can magnify operational risk.
An organization's enterprise risk management framework defines its risk profile and typically reflects the organization's
A. Market and credit risks
II. Operational and liquidity risks
III. Strategic and geopolitical risks
IV. Structural developments and industry position
B. I, II
C. I, IV
D. II, III
E. I, II, III
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