Online Access Free 8008 Practice Test

A financial institution is considering shedding a business unit to reduce its economic capital requirements.
Which of the following is an appropriate measure of the resulting reduction in capital requirements?

• A.Incremental capital for the business unit in consideration
• B.Percentage of total gross income contributed by the business unit in question
• C.Marginal capital for the business unit in consideration
• D.Proportionate capital for the business unit in consideration

The principle underlying the contingent claims approach to measuring credit risk equates the cost of eliminating credit risk for a firm to be equal to:

• A.the cost of a call on the firm's assets with a strike equal to the value of the debt
• B.the market valuation of the firm's equity less the value of its liabilities
• C.the probability of the firm's assets falling below the critical value for default
• D.the value of a put on the firm's assets with a strike equal to the value of the debt

A bank expects the error rate in transaction data entry for a particular business process to be 0.005%. What is the range of expected errors in a day within +/- 2 standard deviations if there are 2,000,000 such transactions each day?

• A.60 to 80 errors in a day
• B.0 to 200 errors in a day
• C.80 to 120 errors in a day
• D.90 to 110 errors in a day

For identical mean and variance, which of the following distribution assumptions will provide a higher estimate of VaR at a high level of confidence?

• A.A distribution with kurtosis = 0
• B.A distribution with kurtosis = 2
• C.A distribution with kurtosis = 3
• D.A distribution with kurtosis = 8

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?

• A.$4m
• B.$2.1m
• C.$7m
• D.$4.9m