11 Questions
| Total Attempts: 21

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