NO.91 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

NO.92 Typically, which one of the following four option risk measures will be used to determine the number of
options to use to hedge the underlying position?

NO.93 Which of the following statements are reasons for mathematical valuation and risk assessment models to be
misleading or inaccurate?
I. There could be missing factors in models.
II. The data used as input for the model could be bad or wrong.
III. Model results could be misinterpreted.
IV. There could be errors in the derivation of the model.

NO.94 A risk analyst is considering how to reduce the bank’s exposure to rising interest rates. Which of the following
strategies will help her achieve this objective?
I. Reducing the average repricing time of its loans
II. Increasing the average repricing time of its deposits
III. Entering into interest rate swaps
IV. Improving earnings capacity and increasing intermediated funds

NO.95 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.
What may happen to the Delta’s initial credit parameter and the value of its loan if the machinery industry
experiences adverse structural changes?

NO.96 James Johnson bought a coupon bond yielding 4.7% for $1,000. Assuming that the price drops to $976 when
yield increases to 4.71%, what is the PVBP of the bond.

NO.97 A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5%
semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk
manager of the bank is concerned about the sensitivity to interest rates. Which of the following statements are
true?

NO.98 Forward rate agreements (FRA) are:

NO.99 Which one of the following four statements correctly describes an American call option?

NO.100 Company A needs to provide a risk probability/frequency score for its RCSA program. If the event is likely to
happen once in 2 years, then the frequency score will be equal to:

NO.101 What are the add-on losses faced by a bank that is going bankrupt?
I. The discount accepted by the bank for selling its assets in a fire sale.
II. The increased cost of funding liabilities in a financially distressed situation.
III. The reduction in the present value of future growth opportunities.
IV. Loss of goodwill and intangible assets.

NO.102 A corporate bond gives a yield of 6%. A same maturity government bond yields 2%. The probability of the
corporate bond defaulting is 2.5%. In case of default, investors expect to lose 60% of their investment. The
risk premium in the credit spread is:

NO.103 Which of the following statements describes a bank’s reasons to set risk limits?
I. To control and minimize a bank’s current risk exposure.
II. To predict future risks.
III. To allocate risks to business units.
IV. To keep risk within tolerance levels.

NO.104 After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk
portions of the portfolio credit risk. This process ___ risk on the residual pieces of the credit portfolio, and as a
result it ___ return on equity for the bank.

NO.105 Which one of the four following activities is NOT a component of the daily VaR computing process?

NO.106 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. Six months after Alpha Bank provides USD
$1 million loan to the Delta Industrial Machinery Corporation, a new competitor enters the machinery
industry, causing Delta to adjust its prices and mark down the value of its inventory. Hence, the probability of
default increases from 2% to 10% and the loss given default increases from 50% to 75%. If Alpha Bank can
reprice the loan, what should the new rate be?

NO.107 Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a
foreign exchange option?

NO.108 Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is
collateralized with $55,000. 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?

NO.109 Which one of the following four mathematical option pricing models is used most widely for pricing European
options?