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51. Which of the following outcomes is NOT associated with an operational risk process?
A. The sale of call options being booked as a purchase
B. A monthly volatility is inputted in a model that requires a daily volatility
C. A loss is incurred on an option portfolio because ex post volatility exceeded expected volatility
D. A volatility estimate is based on a time-series that includes a price that exceeds the other prices by a factor of 100
Correct answer is C
Choices A, B, and D are outcomes that are associated with an operational risk process. Operational risk is the risk of loss caused by failure in operational process or systems that support them. Equivalently, operational risk is the breakdowns of people, processes, and systems within an organization. Given this definition, choices A, B, and D are outcomes that are associated with an operational risk process.ffice ffice" />
Reference: Understanding Market, Credit, and Operational Risk, Allen, Boudoukh, and Saunders, 2004.
52. Which of the following CORRECTLY describe the similarities between Operational VAR and Market VAR?
I. Both VARs, when used for regulatory capital measurement, need to be validated against actual loss experience.
II. Both are built on data (market prices for Market VAR and operational loss data for Operational VAR) that is readily available
III. Both are modeled based on a normal distribution.
IV. Extreme Value Theory can be used to model extreme losses at the tail of the distribution for both Operational and Market VAR
A. I and IV
B. I, II and III
C. I, II and IV
D. II, III and IV
Correct answer is A
I and IV are correct comparisons.
'II' is not a correct comparison. While market risk data is readily available, operational losses (especially extreme operational losses) data are relatively sparse and pose significant difficulty for operational VAR modeling.
'III' is not a correct comparison. Other statistical distributions also are in use for modeling VAR. E.g. an Operational VAR can be derived from convolution of a frequency distribution (e.g. Poisson distribution) and a severity distribution (e.g. lognormal distribution).
Reference: Understanding Market, Credit, and Operational Risk, Allen, Boudoukh, and Saunders, 2004.
53. Which of the following measures is the most suitable for performance measurement of a derivatives trading business unit?
A. Internal rate of return
B. Return on asset
C. Sharpe ratio
D. Risk adjusted return on capital
Correct answer is D
A is incorrect. Internal rate of return is often used to measure the return on a capital budgeting decision. It is the interest rate that sets the NPV of the investment equal to zero.
B is incorrect. Return on asset is used to measure the performance of a firm. It can be used to measure the performance of a business unit but it does not adjust for risk. ROA is based on revenues and net income of the business unit.
C is incorrect. The Sharpe ratio measures the expected risk premium of a portfolio relative to its variability (i.e. (Expected return ? risk free rate)/standard deviation).
D is correct. Risk adjusted return on capital measures the net economic profit of a unit divided by the capital allocated to the business unit. RAROC helps to determine whether the firm's' capital is sufficient to support all of it risk. It also helps to determine whether a business unit is producing a reasonable return relative to its risk profile.
Reference: Risk Management, Crouhy, Mark, Galai, 2001.
54. Your Board of Directors wants a comprehensive review of each business units' operational risk activities. As the head of the corporate operational risk unit, you know that little has been done to implement an operational risk process at the business unit level and that you need to immediately come up with a framework. Which of the following statements offers the best strategy?
I. The audit committee of the Board should first define its objectives to ensure that all the firm's business units' operational risk programs are providing required information
II. The auditing department is to be charged with developing an operational risk program for each business unit, with the business unit being made clearly aware that they will be held accountable for its implementation
III. That your department immediately assess the operational risk for each business unit using independent data feeds to ensure the information fed into the assessment cannot be manipulated
IV. A senior manager from each profit center is to be charged with developing their own operational risk self assessment program based on guidelines you provide.
A. I only
B. I and IV only
C. I and III only
D. IV only
Correct answer is D
'I' is incorrect. 'I' is not the responsibility of the Audit Committee of the Board.
'II'' is incorrect. The auditing department is not the best assessor of an individual business unit's risk, in fact many audit staff do not fully understand the risks of many of a firm's activities.
'III' is incorrect. 'III' is duplicative and should not come form the corporate department.
'IV' is correct. The best strategy for developing an operational risk framework is to empower business units with the responsibility, accountability and authority to manage their own operational risks. The business units know their risks the best.
Reference: Risk Management and Capital Adequacy, Gallati, 2003.
55. Which of the following risk management strategies of a firm which has principal payments to make on its debt in one year that substantially exceed the market value of its assets is most likely to be in the interest of the shareholders?
A. Reduction of the overall risk level of the firm
B. Increase of the overall risk level of the firm
C. Keep the same risk level
D. It is impossible to say which risk management strategy the shareholders prefer
Correct answer is B
Once a firm is in distress, it is not in the interests of shareholders to reduce risk. If the firm stays in distress and eventually defaults, shareholders will end up with worthless shares. In these circumstances, management intent on maximizing shareholder value will seek out new risks.
Reference: Risk Management and Derivatives, Stulz, 2003. | 
发表于 2009-6-13 14:27
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