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Which one of the following four statements on factors affecting the value of options is correct?
Which one of the following four statements on factors affecting the value of options is correct?A . As volatility rises, options increase in value.B . As time passes, options will increase in value.C . As interest rates rise and option's rho is positive, option prices will decrease.D . As the...
If Alpha Bank can reprice the loan, what should the new rate be?
Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both...
Which of the following variables would most likely serve as an input in these models?
A risk manager is considering how to best quantify option price dynamics using mathematical option pricing models. Which of the following variables would most likely serve as an input in these models? I. Implicit parameter estimate based on observed market prices II. Estimates of sensitivity of option prices to parameter...
To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements:
To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements: I. Bonds II. Marketable loans III. Credit card loansA . IB . IIC . I, IID . II, IIIView AnswerAnswer: C
Which one of the following four statements regarding counterparty credit risk is INCORRECT?
Which one of the following four statements regarding counterparty credit risk is INCORRECT?A . Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.B . The exposure at default is variable due to fluctuations in swap valuations.C . The exposure...
A risk manager is analyzing a call option on the GBP with a vega of 0.02.
A risk manager is analyzing a call option on the GBP with a vega of 0.02. When the perceived future volatility increases by 1%, the call optionA . Increases in value by 0.02.B . Increases in value by 2.C . Decreases in value by 0.02.D . Decreases in value by...
Which of the following risk types are historically associated with credit derivatives?
Which of the following risk types are historically associated with credit derivatives? I. Documentation risk II. Definition of credit events III. Occurrence of credit events IV. Enterprise riskA . I, IVB . I, IIC . I, II, IIID . II, III, IVView AnswerAnswer: C
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). 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 expected loss be? What is the expected loss of this loan?
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). 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 expected loss be? What is the expected loss of...
Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment. Hence, the loss rate in this case will be
Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both...
At first approximation, what is the overall exposure to USD depreciation?
A risk manager analyzes a long position with a USD 10 million value. To hedge the portfolio, it seeks to use options that decrease JPY 0.50 in value for every JPY 1 increase in the long position. At first approximation, what is the overall exposure to USD depreciation?A . His...
