For which one of the following four reasons do corporate customers use foreign exchange derivatives?

I. To lock in the current value of foreign-denominated receivables

II. To lock in the current value of foreign-denominated payables

III. To lock in the value of expected future foreign-denominated receivables

IV.

To lock in the value of expected future foreign-denominated payables

A.

II

B.

I and IV

C.

II and III

D.

I, II, III, IV

By lowering the spread on lower credit quality borrowers, the bank will typically achieve all of the following outcomes EXCEPT:

A. Aggressively courting of new business

B. Lower probability of default

C. Rapid growth

D. Higher losses in case of default

As Japan ___ its budget deficits and ___ its dependence on debt, the Japanese currency, JPY, would ___ in value against other currencies.

A. Reduces, reduces, appreciate

B. Reduces, reduces, depreciate

C. Increases, reduces, appreciate

D. Reduces, increases, depreciate

Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a foreign exchange option?

A. Underlying exchange rates

B. Underlying interest rates

C. Discrete future stock prices

D. Option exercise price

Which one of the following four statements regarding floating rate bonds is incorrect?

A. Floating rate bonds have coupon payments tied to floating interest rates or floating interest rate indexes.

B. Floating rate bonds typically have less price risk than fixed rate bonds.

C. Floating rate bonds are very sensitive to changes in interest rates.

D. Floating rate bonds only have a small degree of interest rate risk.

Modified duration of a bond measures:

A. The change in value of a bond when yields increase by 1 basis point.

B. The percentage change in a bond price when yields increase by 1 basis point.

C. The present value of the future cash flows of a bond calculated at a yield equal to 1%.

D. The percentage change in a bond price when the yields change by 1%.

A bank considers issuing new capital to increase its Tier 1 capital levels. Which of the following financial instruments would most likely to be considered?

A. Long-term and callable debt convertible to equity

B. Convertible preferred shares

C. Short-term callable debt

D. Short-term debt convertible to non-cumulative preferred shares

A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss than if the market had remained stable. However, if the market drops, the customer will benefit from the incorrect accounting and gain from this trade. This trading scenario can serve as an example that

A. Market risk in this transaction can magnify operational risk.

B. Credit risk in this transaction can magnify operational risk.

C. Liquidity risk in this transaction can magnify operational risk.

D. Strategic risk in this transaction can magnify operational risk.

Which of the following statements presents an advantage of using risk and control self-assessments (RCSA) in the operational risk framework?

I. RCSA provides very accurate scoring of risks and controls due to its subjective nature.

II. RCSA program provides insight into risks that exist in a firm, but that may or may not have occurred before.

III. RCSA program can produce biased but transparent operational risk reporting.

IV.

RCSA program allows each department to take ownership of its own risks and controls.

A.

I and III

B.

II and IV

C.

I, II and III

D.

II, III, and IV

For a bank a 1-year VaR of USD 10 million at 95% confidence level means that:

A. There is a 5% chance that the bank would lose less than USD 10 million in a year.

B. There is a 5% chance that the bank would lose more than USD 10 million in a year.

C. There is a 5% chance that the worst loss would be USD 10 million in a year.

D. There is a 5% chance that the least loss would be USD 10 million in a year.