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?

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)

Which of the following represents a riskier exposure for a bank: A LIBOR based loan, or an Overnight Indexed Swap? Which of the two rates is expected to be higher?

Assume the same counterparty and the same notional.

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?

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

Which of the following is the most accurate description of EPE (Expected Positive Exposure):

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

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.

What does a middle office do for a trading desk?

Under the ISDA MA, which of the following terms best describes the netting applied upon the bankruptcy of a party?

A bank extends a loan of $1m to a home buyer to buy a house currently worth $1.5m, with the house serving as the collateral. The volatility of returns (assumed normally distributed) on house prices in that neighborhood is assessed at 10% annually. The expected probability of default of the home buyer is 5%.

What is the probability that the bank will recover less than the principal advanced on this loan; assuming the probability of the home buyer's default is independent of the value of the house?

Which of the following formulae correctly describes Component VaR. (p refers to the portfolio, and i is the i-th constituent of the portfolio. MVaR means Marginal VaR, and other symbols have their usual meanings.)

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

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?

Which of the following should be included when calculating the Gross Income indicator used to calculate operational risk capital under the basic indicator and standardized approaches underBasel II?

Which of the following risks and reasons justify the use of scenario analysis in operational riskmodeling:

I. Risks for which no internal loss data is available

II. Risks that are foreseeable but have no precedent, internally or externally

III. Risks for which objective assessments can be made by experts

IV. Risks that are known to exist, but for which no reliable external or internal losses can be analyzed

V. Reducing the complexity of having to fit statistical models to internal and external loss data

VI. Managing the capital estimation process as to produce estimates in line with management's desired capital buffers.

A bank's detailed portfolio data on positions held in a particular security across the bank does not agree with the aggregate total position for that security for the bank. What data quality attribute is missing in this situation?

Which of the following describes rating transition matrices published by credit rating firms:

For a given notional amount, which of the following carries the greatest counterparty exposure (assuming the same counterparty credit rating for each):

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

Under the standardized approach to calculating operational risk capital under Basel II, negative regulatory capital charges for any of the business units:

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

When building a operational loss distribution by combining a loss frequency distribution and a loss severity distribution, it is assumed that:

I. The severity of losses is conditional upon the numberof loss events

II. The frequency of losses is independent from the severity of the losses

III. Both the frequency and severity of loss events are dependent upon the state of internal controls in the bank

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

Under the standardized approach to calculating operational risk capital, how many business lines are a bank's activities divided into per Basel II?

Which of the following statements are true:

I. A transition matrix is the probability of a security migrating from one rating class to another during its lifetime.

II. Marginal default probabilities refer to probabilities of default in a particular period, given survival atthe beginning of that period.

III. Marginal default probabilities will always be greater than the corresponding cumulative default probability.

IV. Loss given default is generally greater when recovery rates are low.

Once the frequency and severity distributions for loss events have been determined, which of the following is an accurate description of the process to determine a full loss distribution for operational risk?

According to the Basel framework, shareholders' equity and reserves are considered a part of:

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?

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)

Which of the following is a cause ofmodel risk in risk management?

Which of the following is NOT an approach used to allocate economic capital to underlying business units:

Which of the following decisions need to be made as part of laying down a system for calculating VaR:

I. The confidence level and horizon

II. Whether portfolio valuation is based upon a delta-gamma approximation or a full revaluation

III. Whether the VaR is to be disclosed in the quarterly financial statements

IV. Whether a 10 day VaR will be calculated based on 10-day return periods, or for 1-day and scaled to 10 days

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.

A cumulative accuracy plot:

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 probability of the two bonds defaulting simultaneously is 1.4%, what is the default correlation between the two?