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If the cumulative default probabilities of default for years 1 and 2 for a portfolio of credit risky assets is 5% and 15% respectively, what is the marginal probability of default in year 2 alone?A . 15.79%B . 10.53%C . 10.00%D . 11.76%View AnswerAnswer: B Explanation: One way to think...

Which of the following statements is true: I. Expected credit losses are charged to the unit's P&L while unexpected losses hit risk capital reserves. II. Credit portfolio loss distributions are symmetrical III. For a bank holding $10m in face of a defaulted debt that it acquired for $2m, the bank's...

What is the 1-day VaR at the 99% confidence interval for a cash flow of $10m due in 6 months time? The risk free interest rate is 5% per annum and its annual volatility is 15%. Assume a 250 day year.A . 5500B . 1744500C . 109031D . 85123View AnswerAnswer:...

When pricing credit risk for an exposure, which of the following is a better measure than the others:A . Expected Exposure (EE)B . Notional amountC . Potential Future Exposure (PFE)D . Mark-to-marketView AnswerAnswer: A Explanation: Exposure for derivative instruments can vary significantly over the lifetime of the instrument, depending upon...

Which of the following belong in a credit risk report?A . Exposures by countryB . Exposures by industryC . Largest exposures by counterpartyD . All of the aboveView AnswerAnswer: D Explanation: All the listed variables are relevant to management monitoring the credit risk profile of an institution, therefore Choice 'd'...

Which of the following losses can be attributed to credit risk: I. Losses in a bond's value from a credit downgrade II. Losses in a bond's value from an increase in bond yields III. Losses arising from a bond issuer's default IV. Losses from an increase in corporate bond spreadsA...

Which of the following are true: I. Delta hedges need to be rebalanced frequently as deltas fluctuate with fluctuating prices. II. Portfolio managers are right to focus on primary risks over secondary risks. III. Increasing the hedge rebalance frequency reduces residual risks but increases transaction costs. IV. Vega risk can...

Which of the following is NOT an approach used to allocate economic capital to underlying business units:A . Stand alone economic capital contributionsB . Marginal economic capital contributionsC . Fixed ratio economic capital contributionsD . Incremental economic capital contributionsView AnswerAnswer: C Explanation: Other than Choice 'c', all others represent valid...

Which of the following statements is true: I. When averaging quantiles of two Pareto distributions, the quantiles of the averaged models are equal to the geometric average of the quantiles of the original models based upon the number of data items in each original model. II. When modeling severity distributions,...

A Bank Holding Company (BHC) is invested in an investment bank and a retail bank. The BHC defaults for certain if either the investment bank or the retail bank defaults. However, the BHC can also default on its own without either the investment bank or the retail bank defaulting. The...