Online Access Free 8008 Practice Test

For credit risk calculations, correlation between the asset values of two issuers is often proxied with:

• A.Default correlations
• B.Equity correlations
• C.Credit migration matrices
• D.Transition probabilities

For a loan portfolio, expected losses are charged against:

• A.Credit reserves
• B.Economic capital
• C.Economic credit capital
• D.Regulatory capital

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:

• A.Lower
• B.Higher
• C.Zero
• D.Unaffected by differences in frequency or severity

Which of the following statements are true:
I. Capital adequacy implies the ability of a firm to remain a going concern II. Regulatory capital and economic capital are identical as they target the same objectives III. The role of economic capital is to provide a buffer against expected losses IV. Conservative estimates of economic capital are based upon a confidence level of 100%

• A.I
• B.III
• C.I and III
• D.I, III and IV

The daily VaR of an investor's commodity position is $10m. The annual VaR, assuming daily returns are independent, is ~$158m (using the square root of time rule). Which of the following statements are correct?
I. If daily returns are not independent and show mean-reversion, the actual annual VaR will be higher than
$158m.
II. If daily returns are not independent and show mean-reversion, the actual annual VaR will be lower than
$158m.
III. If daily returns are not independent and exhibit trending (autocorrelation), the actual annual VaR will be higher than $158m.
III. If daily returns are not independent and exhibit trending (autocorrelation), the actual annual VaR will be lower than $158m.

• A.II and III
• B.II and IV
• C.I and III
• D.I and IV