Online Access Free 8011 Practice Test

Which of the following statements are true:
I. Credit VaR often assumes a one year time horizon, as opposed to a shorter time horizon for market risk as credit activities generally span a longer time period.
II. Credit losses in the banking book should be assessed on the basis of mark-to-market mode as opposed to the default-only mode.
III. The confidence level used in the calculation of credit capital is high when the objective is to maintain a high credit rating for the institution.
IV. Credit capital calculations for securities with liquid markets and held for proprietary positions should be based on marking positions to market.

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

A corporate bond maturing in 1 year yields 8.5% per year, while a similar treasury bond yields 4%. What is the probability of default for the corporate bond assuming the recovery rate is zero?

• A.4.15%
• B.Cannot be determined from the given information
• C.4.50%
• D.8.50%

The results of 'desk-level' stress tests cannot be added together to arrive at institution wide estimates because:

• A.All of the above
• B.Desk-level stress tests tend to ignore higher level risks that are relevant to the institution but completely outside the control of the individual desks.
• C.Desk-level stress tests tend to focus on extreme movements in risk parameters (such as volatility) without considering economy wide scenarios that may represent more realistic and consistent situations for the institution.
• D.Desk-level stress tests focus on desk specific risks that may be minor or irrelevant in the larger scheme at the institution level.

The degree distribution of the nodes of the financial network is:

• A.normally distributed
• B.long tailed
• C.best approximated by a beta distribution
• D.non-linear

Which of the following is true in relation to Principal Component Analysis (PCA)?
I. An n x n positive definite square matrix will have n-1 eigenvectors
II. The eigenvalues for a correlation matrix can be derived from the corresponding values for the covariance matrix III. Principal components are uncorrelated to each other IV. PCA is useful as it allows 100% of the variation in a complex system to be explained by the first three principal components

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