Pre-Winter Special Sale - Limited Time 60% Discount Offer - Ends in 0d 00h 00m 00s - Coupon code: 575363r9

Welcome To DumpsPedia

8010 Sample Questions Answers

Questions 4

When compared to a high severity low frequency risk, the operational risk capital requirement for a low severity high frequency risk is likely to be:

Options:

A.

Higher

B.

Zero

C.

Lower

D.

Unaffected by differences in frequency or severity

Buy Now
Questions 5

Which of the following statements are true:

I. The set of UoMs used for frequency and severity modeling should be identical

II. UoMs can be grouped together into larger combined UoMs using judgment based on the knowledge of the business

III. UoMs can be grouped together into combined UoMs using statistical techniques

IV. One may use separate sets of UoMs for frequency and severity modeling

Options:

A.

I, II and III

B.

IV only

C.

II, III and IV

D.

All of the above

Buy Now
Questions 6

A stock that follows the Weiner process has its future price determined by:

Options:

A.

its current price, expected return and standard deviation

B.

its standard deviation and past technical movements

C.

its expected return and standard deviation

D.

its expected return alone

Buy Now
Questions 7

Which of the following statements are true?

I. Retail Risk Based Pricing involves using borrower specific data to arrive at both credit adjudication and pricing decisions

II. An integrated 'Risk Information Management Environment' includes two elements - people and processes

III. A Logical Data Model (LDM) lays down the relationships between data elements that an organization stores

IV. Reference Data and Metadata refer to the same thing

Options:

A.

II and IV

B.

I and III

C.

I, II and III

D.

All of the above

Buy Now
Questions 8

Which of the following is true in relation to the application of Extreme Value Theory when applied to operational risk measurement?

I. EVT focuses on extreme losses that are generally not covered by standard distribution assumptions

II. EVT considers the distribution of losses in the tails

III. The Peaks-over-thresholds (POT) and the generalized Pareto distributions are used to model extreme value distributions

IV. EVT is concerned with average losses beyond a given level of confidence

Options:

A.

I and IV

B.

II and III

C.

I, II and III

D.

I, II and IV

Buy Now
Questions 9

Under the standardized approach to determining operational risk capital, operations risk capital is equal to:

Options:

A.

a fixed percentage of the latest gross income of the bank

B.

a varying percentage, determined by the national regulator, of the gross revenue of each of the bank's business lines

C.

15% of the average gross income (considering only the positive years) of the past three years

D.

a fixed percentage (different for each business line) of the gross income of the eight specified business lines, averaged over three years

Buy Now
Questions 10

A cumulative accuracy plot:

Options:

A.

is a measure of the correctness of VaR calculations

B.

measures the accuracy of credit risk estimates

C.

measures accuracy of default probabilities observed empirically

D.

measures rating accuracy

Buy Now
Questions 11

According to the Basel II framework, subordinated term debt that was originally issued 4 years ago with amaturity of 6 years is considered a part of:

Options:

A.

Tier 2 capital

B.

Tier 1 capital

C.

Tier 3 capital

D.

None of the above

Buy Now
Questions 12

Which of the following is a measure of the level of capital that an institution needs to hold in order to maintain a desired credit rating?

Options:

A.

Shareholders' equity

B.

Economic capital

C.

Regulatory capital

D.

Book value

Buy Now
Questions 13

A corporate bond maturing in 1 year yields 8.5% per year,while a similar treasury bond yields 4%. What is the probability of default for the corporate bond assuming the recovery rate is zero?

Options:

A.

4.15%

B.

4.50%

C.

8.50%

D.

Cannot be determined from the given information

Buy Now
Questions 14

Pick underlying risk factors for a position in an equity index option:

I. Spot value for the index

II. Risk free interest rate

III. Volatility of the underlying

IV. Strike price for the option

Options:

A.

I and IV

B.

I, II and III

C.

II and II

D.

All of the above

Buy Now
Questions 15

Which of the following statements is true:

I. Confidence levels for economic capital calculations are driven by desired credit ratings

II. Loss distributions for operational risk are affected more by theseverity distribution than the frequency distribution

III. The Advanced Measurement Approach (AMA) referred to in the Basel II standard is a type of a Loss Distribution Approach (LDA)

IV. The loss distribution for operational risk under the LDA (Loss Distribution Approach) is estimated by separately estimating the frequency and severity distributions.

Options:

A.

I and II

B.

I, III and IV

C.

I, II and IV

D.

III and IV

Buy Now
Questions 16

Which of the following is not a parameter to be determined by the risk manager that affects the level of economic credit capital:

Options:

A.

Risk horizon

B.

Confidence level

C.

Probability of default

D.

Definition of credit losses

Buy Now
Questions 17

For a loan portfolio, expected losses are charged against:

Options:

A.

Economic capital

B.

Regulatory capital

C.

Credit reserves

D.

Economic credit capital

Buy Now
Questions 18

Which of the following is not a limitation of the univariate Gaussian model to capture the codependence structure between risk factros used for VaR calculations?

Options:

A.

The univariate Gaussian model fails to fit to the empirical distributions of risk factors, notably their fat tails and skewness.

B.

Determining the covariance matrix becomes an extremely difficult task as the number of risk factors increases.

C.

It cannot capture linear relationships between risk factors.

D.

A single covariance matrix is insufficient to describe the fine codependence structure among risk factors as non-linear dependencies or tail correlations are not captured.

Buy Now
Questions 19

Under the contingent claims approach to measuring credit risk, which of the following factors does NOT affect credit risk:

Options:

A.

Cash flows of the firm

B.

Maturity of the debt

C.

Volatility of the firm's asset values

D.

Leverage in the capital structure

Buy Now
Questions 20

What isthe risk horizon period used for credit risk as generally used for economic capital calculations and as required by regulation?

Options:

A.

1-day

B.

1 year

C.

10 years

D.

10 days

Buy Now
Questions 21

If the odds of default are 1:5, what is the probability of default?

Options:

A.

16.67%

B.

20.00%

C.

12.00%

D.

50.00%

Buy Now
Questions 22

The CDS quote for the bonds of Bank X is 200 bps. Assuming a recovery rate of 40%, calculate the default hazard rate priced in the CDS quote.

Options:

A.

0.80%

B.

5.00%

C.

3.33%

D.

2.00%

Buy Now
Questions 23

When combining separate bottom up estimates of market, credit and operational risk measures, a most conservative economic capital estimate results from which of the following assumptions:

Options:

A.

Assuming that the resulting distributions have a correlation between 0 and 1

B.

Assuming that market, credit and operational risk estimates are perfectly positively correlated

C.

Assuming that market, credit and operational risk estimates are perfectly negatively correlated

D.

Assuming that market, credit and operational risk estimates are uncorrelated

Buy Now
Questions 24

Loss from a lawsuit from an employee due to physical harm caused while at work is categorized per Basel II as:

Options:

A.

Employment practices and workplace safety

B.

Execution delivery and process management

C.

Unsafe working environment

D.

Damage to physical assets

Buy Now
Questions 25

The unexpected loss for a credit portfolio at a given VaR estimate is definedas:

Options:

A.

max(Actual Loss - Expected Loss, 0)

B.

Actual Loss - Expected Loss

C.

Actual Loss - VaR

D.

VaR - Expected Loss

Buy Now
Questions 26

There are two bonds in a portfolio, each with a market value of $50m. The probability of default of the two bonds are 0.03 and 0.08 respectively, over a one year horizon. If the default correlation is 25%, what is the one year expected loss on this portfolio?

Options:

A.

$1.38m

B.

$11m

C.

$5.26m

D.

$5.5mc

Buy Now
Questions 27

If P be the transition matrix for 1 year, how can we find the transition matrix for 4 months?

Options:

A.

By calculating the cube root of P

B.

By numerically calculating a matrix M such that M x M x M is equal toP

C.

By dividing P by 3

D.

By calculating the matrix P x P x P

Buy Now
Questions 28

If the marginal probabilities of default for a corporate bond for years 1, 2 and 3 are 2%, 3% and 4% respectively, what is the cumulative probability of default at the end of year 3?

Options:

A.

8.74%

B.

9.58%

C.

9.00%

D.

91.26%

Buy Now
Questions 29

Which of the following will be a loss not covered by operational risk as defined under Basel II?

Options:

A.

Earthquakes

B.

Fat finger losses

C.

Systems failure

D.

Strategic planning

Buy Now
Questions 30

Which of the following are valid approaches for extreme value analysis given a dataset:

I. The Block Maxima approach

II. Least squares approach

III. Maximum likelihood approach

IV. Peak-over-thresholds approach

Options:

A.

II and III

B.

I, III and IV

C.

I and IV

D.

All of the above

Buy Now
Questions 31

Which of the following statements are true:

I. A high score according to Altman's Z-Score methodology indicates a lower default risk

II. A high score according to theProbit or Logit models indicates a higher default risk

III. A high score according to Altman's Z-Score methodology indicates a higher default risk

IV. A high score according to the Probit or Logit models indicates a lower default risk

Options:

A.

III and IV

B.

II and III

C.

I and IV

D.

I and II

Buy Now
Questions 32

Which of the following are valid methods for selecting an appropriate model from the model space for severity estimation:

I. Cross-validation method

II. Bootstrap method

III. Complexity penalty method

IV. Maximum likelihood estimation method

Options:

A.

II and III

B.

I, II and III

C.

I and IV

D.

All of the above

Buy Now
Questions 33

Company A issues bonds with a face value of$100m, sold at $98. Bank B holds $10m in face of these bonds acquired at a price of $70. Company A then defaults, and the recovery rate is expected to be 30%. What is Bank B's loss?

Options:

A.

$7m

B.

$4m

C.

$2.1m

D.

$4.9m

Buy Now
Questions 34

A stock that follows the Weiner process has its future price determined by:

Options:

A.

its expected return alone

B.

its expected return and standard deviation

C.

its standard deviation and pasttechnical movements

D.

its current price, expected return and standard deviation

Buy Now
Questions 35

Which of the following are considered properties of a 'coherent' risk measure:

I. Monotonicity

II. Homogeneity

III. Translation Invariance

IV. Sub-additivity

Options:

A.

II and III

B.

II and IV

C.

I and III

D.

All of theabove

Buy Now
Questions 36

For a given mean, which distribution would you prefer for frequency modeling where operational risk events are considered dependent, or in other words are seen as clustering together (as opposed to being independent)?

Options:

A.

Binomial

B.

Gamma

C.

Negative binomial

D.

Poisson

Buy Now
Questions 37

Whichof the following statements are true in relation to Historical Simulation VaR?

I. Historical Simulation VaR assumes returns are normally distributed but have fat tails

II. It uses full revaluation, as opposed to delta or delta-gamma approximations

III. Acorrelation matrix is constructed using historical scenarios

IV. It particularly suits new products that may not have a long time series of historical data available

Options:

Buy Now
Questions 38

Under the credit migration approach to assessing portfolio credit risk, which of the following are needed to generate adistribution of future portfolio values?

Options:

A.

The forward yield curve

B.

A specified risk horizon

C.

A rating migration matrix

D.

All of the above

Buy Now
Questions 39

Which of the following best describes economic capital?

Options:

A.

Economic capital is the amount of regulatory capital mandated for financial institutions in the OECD countries

B.

Economic capital is the amount of regulatory capital that minimizes the cost ofcapital for firm

C.

Economic capital reflects the amount of capital required to maintain a firm's target credit rating

D.

Economic capital is a form of provision for market risk losses should adverse conditions arise

Buy Now
Questions 40

The frequency distribution for operational risk loss events can be modeled by which of the following distributions:

I. The binomial distribution

II. The Poisson distribution

III. The negative binomial distribution

IV. The omega distribution

Options:

A.

I, II and III

B.

I and III

C.

I, III and IV

D.

I, II, III and IV

Buy Now
Questions 41

Random recovery rates in respectof credit risk can be modeled using:

Options:

A.

the beta distribution

B.

the omega distribution

C.

the normal distribution

D.

the binomial distribution

Buy Now
Questions 42

The difference between true severity and the best approximation of the true severity is called:

Options:

A.

Approximation error

B.

Fitting error

C.

Total error

D.

Estimation error

Buy Now
Questions 43

Which of the following is the best description of the spread premium puzzle:

Options:

A.

The spread premium puzzle refers to observed default rates being much less than implied default rates, leading to lower credit bonds being relatively cheap when compared to their actual default probabilities

B.

The spread premium puzzle refers to dollar denominated non-US sovereign bonds being priced a at significant discount to other similar USD denominated assets

C.

The spread premium puzzle refers to AAA corporate bonds being priced at almost the same prices as equivalent treasury bonds without offering the same liquidity or guarantee as treasury bonds

D.

The spread premium puzzle refers to the moral hazard implicit in the monoline insurance market

Buy Now
Questions 44

Which of the following need to be assumed to convert a transition probability matrix for a given time period to the transition probability matrix for another length of time:

I. Time invariance

II. Markov property

III. Normal distribution

IV. Zero skewness

Options:

A.

I, II and IV

B.

III and IV

C.

I and II

D.

II and III

Buy Now
Questions 45

Which of the following best describes the concept of marginalVaR of an asset in a portfolio:

Options:

A.

Marginal VaR is the value of the expected losses on occasions where the VaR estimate is exceeded.

B.

Marginal VaR is the contribution of the asset to portfolio VaR in a way that the sum of such calculations for all the assets in the portfolio adds up to the portfolio VaR.

C.

Marginal VaR is the change in the VaR estimate for the portfolio as a result of including the asset in the portfolio.

D.

Marginal VaR describes the change in total VaR resulting from a $1 change in the value of the asset in question.

Buy Now
Questions 46

Which of the following belong to the family of generalized extreme value distributions:

I. Frechet

II. Gumbel

III. Weibull

IV. Exponential

Options:

A.

IV

B.

I, II and III

C.

II and III

D.

All of the above

Buy Now
Questions 47

For a bank using the advanced measurement approach to measuring operational risk, which of the following brings the greatest 'model risk' to its estimates:

Options:

A.

Choice of an incorrect distribution for loss event frequencies

B.

Insufficient number of simulations when building the loss distribution

C.

Choice of incorrect parameters for loss severity distributions

D.

Aggregation risk, from selecting an incorrect value of estimated correlations between different operational risk estimates

Buy Now
Questions 48

If the full notional value of a debt portfolio is $100m, its expected value in a year is $85m, and the worst value of the portfolio in one year's time at 99% confidence level is $60m, then what is the credit VaR?

Options:

A.

$40m

B.

$25m

C.

$60m

D.

$15m

Buy Now
Questions 49

Which of the following statements is true:

I. When averaging quantiles of two Pareto distributions, the quantiles of theaveraged 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, we can only use distributions which have fewer parameters thanthe number of datapoints we are modeling from.

III. If an internal loss data based model covers the same risks as a scenario based model, they can can be combined using the weighted average of their parameters.

IV If an internal loss model and a scenario based model address different risks, the models can be combined by taking their sums.

Options:

A.

II and III

B.

III and IV

C.

I and II

D.

All statements are true

Buy Now
Questions 50

A risk management function is best organized as:

Options:

A.

integrated with the risk taking functions as risk management should be a pervasive activity carried out at all levels of theorganization.

B.

report independently of the risk taking functions

C.

reporting directly to the traders, as to be closest to the point at which risks are being taken

D.

a part of the trading desks and other risk taking teams

Buy Now
Questions 51

For a back office function processing 15,000 transactions a day with an error rate of 10 basis points, what is the annual expected loss frequency (assume 250 days in a year)

Options:

A.

3750

B.

0.06

C.

37500

D.

375

Buy Now
Questions 52

Under the KMV Moody's approach to credit risk measurement, how is the distance to default converted to expected default frequencies?

Options:

A.

Using a proprietary database based on historical information

B.

Using migration matrices

C.

Using a normal distribution

D.

Using Monte Carlo simulations

Buy Now
Questions 53

Which of the following is not a permitted approach under Basel II for calculating operational riskcapital

Options:

A.

the internal measurement approach

B.

the basic indicator approach

C.

the standardized approach

D.

the advanced measurement approach

Buy Now
Questions 54

The generalized Pareto distribution, when used in the context of operational risk, is used to model:

Options:

A.

Tail events

B.

Average losses

C.

Unexpected losses

D.

Expected losses

Buy Now
Questions 55

Under the CreditPortfolio View approach to credit risk modeling, which of the following best describes the conditional transition matrix:

Options:

A.

The conditional transition matrix is the unconditional transition matrix adjusted for the state of the economy and other macro economic factors being modeled

B.

The conditional transition matrix is the transition matrix adjusted for the risk horizon being different from that of the transition matrix

C.

The conditional transition matrix is the unconditional transition matrix adjusted for probabilities of defaults

D.

The conditional transition matrix is the transition matrix adjusted for the distribution of the firms' asset returns

Buy Now
Questions 56

Economic capital under the Earnings Volatility approach is calculated as:

Options:

A.

Expected earnings/Specific risk premium for the firm

B.

[Expected earningsless Earnings under the worst case scenario at a given confidence level]/Required rate of return for the firm

C.

Earnings under the worst case scenario at a given confidence level/Required rate of return for the firm

D.

Expected earnings/Required rate of return for the firm

Buy Now
Questions 57

The probability of default of a security during the first year after issuance is 3%, that during the second and third years is 4%, and during the fourth year is 5%. What is the probability that it would not have defaulted at the end of four years from now?

Options:

A.

12.00%

B.

88.53%

C.

88.00%

D.

84.93%

Buy Now
Questions 58

Which of the following are true:

I. The total of the component VaRs for all components of a portfolio equals the portfolio VaR.

II. The total of the incremental VaRs for each position in a portfolio equals the portfolio VaR.

III. Marginal VaR and incremental VaR are identical for a $1 change in the portfolio.

IV. The VaR for individual components of a portfolio is sub-additive, ie the portfolio VaR is less than (or in extreme cases equal to) the sum of the individual VaRs.

V. The component VaR for individual components of a portfolio is sub-additive, ie the portfolio VaR is less than the sum of the individual component VaRs.

Options:

A.

II and V

B.

II and IV

C.

I and II

D.

I,III and IV

Buy Now
Questions 59

Which of the following is NOT true in respect of bilateral close out netting:

Options:

A.

The net amount due is immediately receivable or payable

B.

All transactions are immediatelyclosed out upon the occurrence of a credit event for either of the counterparties

C.

All transactions are netted against each other

D.

Transactions are separated by transaction type and immediately settled separately at each's replacement value

Buy Now
Questions 60

If the default hazard rate for a company is 10%, and the spread on its bondsover the risk free rate is 800 bps, what is the expected recovery rate?

Options:

A.

40.00%

B.

20.00%

C.

8.00%

D.

0.00%

Buy Now
Questions 61

All else remaining the same, an increase in the joint probability of default between two obligors causes the default correlation between the two to:

Options:

A.

Increase

B.

Decrease

C.

Stay the same

D.

Cannot be determined from the given information

Buy Now
Questions 62

Which of the following formulae describes CVA (Credit Valuation Adjustment)? All acronyms have their usual meanings (LGD=Loss Given Default, ENE=Expected Negative Exposure, EE=Expected Exposure, PD=Probability of Default, EPE=Expected Positive Exposure, PFE=Potential Future Exposure)

Options:

A.

LGD * ENE * PD

B.

LGD * EPE * PD

C.

LGD * EE * PD

D.

LGD * PFE * PD

Buy Now
Questions 63

The capital adequacy ratio applied to risk weighted assets for the calculation of capital requirements for credit risk per Basel II is:

Options:

A.

150%

B.

12.5%

C.

100%

D.

8%

Buy Now
Questions 64

When fitting a distribution in excess of a threshold as part of the body-tail distribution method described by the equation below, how is the parameter 'p' calculated.

Here, F(x) is the severity distribution. F(Tail) and F(Body) are the parametric distributions selected for the tail and the body, and T is the threshold in excess of which the tail is considered to begin.

Options:

A.

p is a function of the reporting threshold and determined by the log-likelihood functional

B.

If there are K observations up to the tail threshold, then p = k*n

C.

p is a parameter estimated using either the sum of least squares or maximum likelihood estimation

D.

If there are Nobservations, of which K are up to T, then p = k/N

Buy Now
Questions 65

Which of the following statements is true:

Options:

A.

Both total expected losses and total unexpected losses are less than the sum ofexpected and unexpected losses on underlying exposures respectively

B.

Total expected losses are equal to the sum of individual underlying exposures while total unexpected losses are greater than the sum of unexpected losses on underlying exposures

C.

Total expected losses are equal to the sum of expected losses in the individual underlying exposures while total unexpected losses are less than the sum of unexpected losses on underlying exposures

D.

Total expected losses are greater than the sum of individual underlying exposures while total unexpected losses are less than the sum of unexpected losses on underlying exposures

Buy Now
Questions 66

The key difference between 'top down models' and 'bottom up models' foroperational risk assessment is:

Options:

A.

Top down approaches to operational risk are based upon an analysis of key risk drivers, while bottom up approaches consider causality in risk scenarios.

B.

Bottom up approaches to operational risk are based upon an analysis of key risk drivers, while top down approaches consider causality in risk scenarios.

C.

Bottom up approaches to operational risk calculate the implied operational risk using available data such as income volatility, capital etc; while top down approaches use causal factors, risk drivers and other factors to get an aggregated estimate of risk.

D.

Top down approaches to operational risk calculate the implied operational risk using available data such as income volatility, capital etc; while bottom up approaches use causal factors, risk drivers and other factors to get an aggregated estimate of risk.

Buy Now
Questions 67

If E denotes the expected value of a loan portfolio at the end on one year and U the value of the portfolio in the worst case scenario at the 99% confidence level, which of the following expressions correctly describes economic capital requiredin respect of credit risk?

Options:

A.

E - U

B.

U/E

C.

U

D.

E

Buy Now
Questions 68

Which of the following are valid approaches to leveraging external loss data for modeling operational risks:

I. Both internal and external losses can be fitted with distributions,and a weighted average approach using these distributions is relied upon for capital calculations.

II. External loss data is used to inform scenario modeling.

III. External loss data is combined with internal loss data points, and distributions fitted to the combined data set.

IV. External loss data is used to replace internal loss data points to create a higher quality data set to fit distributions.

Options:

A.

I, II and III

B.

I and III

C.

II and IV

D.

All of the above

Buy Now
Questions 69

Which of the following statements are true:

I. Heavy tailed parametricdistributions are a good choice for severity modeling in operational risk.

II. Heavy tailed body-tail distributions are a good choice for severity modeling in operational risk.

III. Log-likelihood is a means to estimate parameters for a distribution.

IV. Body-tail distributions allow modeling small losses differently from large ones.

Options:

A.

I and IV

B.

II and III

C.

II, III and IV

D.

All of the above

Buy Now
Questions 70

Which of the beloware a way to classify risk governance structures:

A Reactive, Preventative and Active

B. Committee based, regulation based and board mandated

C. Top-down and Bottom-up

D. Active and Passive

Options:

Buy Now
Questions 71

Which of the following is not true about the ISDA master agreement (ISDA MA):

Options:

A.

All transactions under the ISDA MA are considered separate obligations

B.

The ISDA MA describes the close out process

C.

The CSA (Credit Support Annex) is one of the parts of the ISDA MA

D.

The ISDA MA describes events of default, and termination events

Buy Now
Questions 72

Which of the following statements are true:

I.Top down approaches help focus management attention on the frequency and severity of loss events, while bottom up approaches do not.

II. Top down approaches rely upon high level data while bottom up approaches need firm specific risk data to estimate risk.

III. Scenario analysis can help capture both qualitative and quantitative dimensions of operational risk.

Options:

A.

III only

B.

II and III

C.

I only

D.

II only

Buy Now
Exam Code: 8010
Exam Name: Operational Risk Manager (ORM) Exam
Last Update: Sep 30, 2024
Questions: 240
$64  $159.99
$48  $119.99
$40  $99.99
buy now 8010