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In this case, what will the bank's exposure at default (EAD) be?
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's exposure at default...
Securitization is the process by which banks
Securitization is the process by which banks I. Issue bonds where the payment of interest and repayment of principal on the bonds depends on the cash flow generated by a pool of bank assets. II. Issue bonds where the bank has transferred its legal right to payment of interest and...
What are the add-on losses faced by a bank that is going bankrupt?
What are the add-on losses faced by a bank that is going bankrupt? I. The discount accepted by the bank for selling its assets in a fire sale. II. The increased cost of funding liabilities in a financially distressed situation. III. The reduction in the present value of future growth...
Which one of the following four statements represents a possible disadvantage of using total return swap to manage equity portfolio risks?
Which one of the following four statements represents a possible disadvantage of using total return swap to manage equity portfolio risks?A . Similar to the formal portfolio rebalancing strategy, the total return receiver needs to modify the size of the trading position.B . The total return receiver needs to incur...
To estimate the responsiveness of a particular equity portfolio to the overall market, a trader should use the portfolio's
To estimate the responsiveness of a particular equity portfolio to the overall market, a trader should use the portfolio'sA . AlphaB . BetaC . CVaRD . VaRView AnswerAnswer: B Explanation: Beta measures the responsiveness of a particular equity or equity portfolio to the overall market. It captures the correlation between...
Present value of a basis point (PVBP) is one of the ways to quantify the risk of a bond, and it measures:
Present value of a basis point (PVBP) is one of the ways to quantify the risk of a bond, and it measures:A . The change in value of a bond when yields increase by 0.01%.B . The percentage change in bond price when yields change by 1 basis point.C ....
Which one of the four attributes does not represent a critical feature of the upward reporting governance structure?
A risk associate responsible for the operational risk function wants to evaluate the upward reporting governance structure and to assess its critical features. Which one of the four attributes does not represent a critical feature of the upward reporting governance structure?A . IndependenceB . ImportanceC . RelevanceD . SecurityView AnswerAnswer:...
John owns a bond portfolio worth $2 million with duration of 10.
John owns a bond portfolio worth $2 million with duration of 10. What positions must he take to hedge this portfolio against a small parallel shifts in the term structure.A . Long position worth $2 million with duration of 10.B . Long position worth $20 million with duration of 1.C...
As Japan ___ its budget deficits and ___ its dependence on debt, the Japanese currency, JPY, would ___ in value against other currencies.
As Japan ___ its budget deficits and ___ its dependence on debt, the Japanese currency, JPY, would ___ in value against other currencies.A . Reduces, reduces, appreciateB . Reduces, reduces, depreciateC . Increases, reduces, appreciateD . Reduces, increases, depreciateView AnswerAnswer: A Explanation: When a country reduces its budget deficits and...
To estimate the required risk-adjusted rate of return on a highly volatile energy stock, a risk associate compiled the following statistics:
To estimate the required risk-adjusted rate of return on a highly volatile energy stock, a risk associate compiled the following statistics: Risk-free rate = 5% Beta = 2.5 Market Risk = 8% Using the Capital Asset Pricing Model, she estimates the rate of return to be equal:A . 10%B ....
