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

A. Probability of default

B. Duration

C. Loss given default

D. Market spreads

Gamma Bank is active in loan underwriting and securitization business, and given its collective credit exposure, it will be typically most interested in the following types of portfolio credit risk:

A. Expected loss

II. Duration

III. Unexpected loss

IV. Factor sensitivities

B. I

C. II

D. I, III

E. I, III, IV

By foreign exchange market convention, spot foreign exchange transactions are to be exchanged at the spot date based on the following settlement rule:

A. One-day rule

B. Two-day rule

C. Three-day rule

D. Four-day rule

Which one of the following four statements correctly defines a non-exotic call option?

A. A call option gives the call option buyer the obligation, but not the right, to buy the underlying instrument at a known price in the future.

B. A call option gives the call option buyer the obligation, but not the right, to sell the underlying instrument at a known price in the future

C. A call option gives the call option buyer the right, but not the obligation, to buy the underlying instrument at a known price in the future

D. A call option gives the call option buyer the right, but not the obligation, to sell the underlying instrument at a known price in the future

A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5% semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk manager of the bank is concerned about the sensitivity to interest rates. Which of the following statements are true?

A. The price of the bond paying floating interest is more sensitive to interest rates than the bond paying fixed interest.

B. The price of the bond paying fixed interest is more sensitive to interest rates than the bond paying floating interest.

C. Both bond prices are equally sensitive to interest rates.

D. The given information is not enough to determine the sensitivity of the bond prices.

AlphaBank estimates its 1-month, 95% VaR is 30 million EUR. This means that in the next month, there is a

A. 95% chance that AlphaBank can lose more than 30 million EUR.

B. 95% chance that AlphaBank will lose exactly 30 million EUR.

C. 95% chance that AlphaBank can lose at most 30 million EUR.

D. 95% chance that AlphaBank will at least lose 30 million EUR.

Which of the following statements about a bank's behavior regarding Risk Adjusted Return on Capital (RAROC) is correct?

A. A bank should always seek to maximize their overall RAROC.

II. A bank should consider investing in a business even with negative RAROC if it increases the

RAROC of the bank as a whole.

III. A bank should minimize its overall RAROC by controlling the absolute and relative amount of risk of its businesses.

IV. A bank should maximize its RAROC by always investing in a new business that maximizes the RAROC for that business unit.

B. I and II

C. II and IV

D. I, II and III

E. II, III, and IV

DeltaFin wants to develop a control scoring method for its RCSA program. Which of the following statements regarding scoring methods are correct?

A. DeltaFin can develop a control scoring method that assesses both the design and the performance of the control.

II. DeltaFin can combine the design and performance scores for each control to produce an overall control effectiveness score.

III. DeltaFin can use the control performance scores to compute an overall risk severity score.

IV. DeltaFin can determine its own appropriate control scoring method.

B. I only

C. II and III

D. I, II and IV

E. II, III, and IV

Which of the following are typical properties of a statistical distribution of potential losses that a bank might sustain over a period of time?

A. The range of possible losses above the average loss is much greater than those below the average loss.

II. The loss that is most likely to occur is below the average loss.

III. The loss that is most likely to occur is above the average loss.

B. II

C. I, II

D. I, III

E. III

The Sarbanes-Oxley Act includes one of the following four requirements for financial institutions in the United States:

A. Risk and control requirements

B. Market discipline requirements

C. Capital allocation requirements

D. Regulatory response to systemic risk requirements