Quant Crash Course - Quiz 1

11 Questions | Total Attempts: 21

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Crash Quizzes & Trivia

This quiz tests you on material covered within Part 1(a, b &c): understanding the distribution and its various elements; volatility and correlation; convexity; specific model terminology; options.


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Questions and Answers
  • 1. 
     Risk management can stop you from making losses.
    • A. 

      True

    • B. 

      False

  • 2. 
    Which of the following may be assessed from a distribution of credit scores? I.   Effectiveness  of a risk manager II.  Behavior of the risk portfolio over a period of time III. Dissection of the risk portfolio across products
    • A. 

      I &II

    • B. 

      I&III

    • C. 

      II&III

    • D. 

      I, II & III

    • E. 

      None of the above

  • 3. 
    Which of the following is not a term used to describe the volatility in a distribution?
    • A. 

      Sigma

    • B. 

      Sigma a,b

    • C. 

      Standard Deviation

    • D. 

      Diffusion

    • E. 

      Dispersion

  • 4. 
    What is trading volatility?  
    • A. 

      Volatility derived from historical market prices

    • B. 

      Volatility derived from empirical data

    • C. 

      Volatility for which model price equals market price

    • D. 

      Volatility at which you are willing to trade the security

    • E. 

      None of the above

  • 5. 
    Volatility is not a static measure over time and can change rapidly from one point in time to the next. 
    • A. 

      True

    • B. 

      False

  • 6. 
    The interest rate differential between a local currency and a foreign currency is approximately  
    • A. 

      Equal to the expected differential between the local inflation rate and the foreign interest rate

    • B. 

      Equal to the expected differential between the local interest rate and the foreign inflation rate

    • C. 

      Equal to the differential between the forward exchange rate and the foreign interest rate

    • D. 

      Equal to the differential between the local interest rate and the spot FX rate

    • E. 

      Equal to the expected change in spot FX rates

  • 7. 
    Why is correlation considered an enemy to the risk manager?  
    • A. 

      Because common risk models assume stable correlations whereas underlying correlations remain unchanged over time

    • B. 

      Because common risk models assume stable correlations whereas underlying correlations change over time

    • C. 

      Because common risk models assume unstable correlations whereas underlying correlations remain unchanged over time

    • D. 

      Because common risk models assume unstable correlations whereas underlying correlations change over time

    • E. 

      None of the above

  • 8. 
    The underlying trend in model terms is known as:
    • A. 

      Diffusion

    • B. 

      Distribution

    • C. 

      Drift

    • D. 

      Dispersion

    • E. 

      Deviation

  • 9. 
    Convexity
    • A. 

      Is the change in price due to a given change in the interest rate

    • B. 

      Is the change in duration due to a given change in the price

    • C. 

      Is the change in option value due to a given change in the price of a bond

    • D. 

      Means that the price rises by a larger amount when interest rates fall by a given Δ% than it declines when interest rates rise by that Δ%

    • E. 

      Means that the price rises by a smaller amount when interest rates fall by a given Δ% than it declines when interest rates rise by that Δ%

  • 10. 
    A put option gives the buyer of the contract the right to:
    • A. 

      Buy the asset at a predetermined price at a predetermined point in the future

    • B. 

      Buy the asset at the prevailing price at a predetermined point in the future

    • C. 

      Sell the asset at a predetermined price at a predetermined point in the future

    • D. 

      Sell the asset at the prevailing price at a predetermined point in the future

    • E. 

      Sell the asset immediately when the price of the underlying asset rises

  • 11. 
    A put option on a bond is more valuable when:        
    • A. 

      Volatility is high

    • B. 

      Volatility is low

    • C. 

      Volatility has no impact on the value of the option