nayizhenfeng

6、Which of the following are examples of model risk illustrated in the Long-Term Capital Management case?

  I. Poor management oversight.
 II. Financial reporting standards.
III. Ignoring autocorrelation of economic shocks.
IV. Underestimating correlations among asset classes during economic crises.
A) II, III, and IV only. 
 
B) III and IV only.
 
C) I, II, III, and IV.
 
D) I only.

nayizhenfeng

 The correct answer is B

LTCM’s models underestimated the extent to which securities prices would move together in times of economic crisis. The models also failed to anticipate that multiple economic shocks might occur in clusters through time (i.e., be positively autocorrelated) as economic history suggests. Poor management oversight and financial reporting standards are not issues in the LTCM case.

nayizhenfeng

7、Balance sheet leverage measures the:

A) value of a portfolio’s equity in relation to the value of the assets. 
 
B) amount of borrowing by firms whose debt or equity held in a portfolio. 
 
C) total leverage faced by a hedge fund investing in derivative securities. 
 
D) sensitivity of a portfolio’s derivative positions to price changes in the underlying assets.

nayizhenfeng

 The correct answer is A

Balance sheet leverage is created when a hedge fund, for example, borrows money to establish investment positions. It is measured by relating the value of the fund’s assets to its equity. If the hedge fund has not balance sheet leverage, the assets are equal to the equity. However, a fund with no balance sheet leverage can still be exposed to leverage via the investments in the portfolio. For example, a forward contract has instrument or economic leverage because small changes in the underlying asset create large changes in the value of the contract. Total leverage is the combined effect of balance sheet leverage and economic, or instrument, leverage.

nayizhenfeng

8、Which of the following factors contributed to the collapse of Barings Bank?

A) A maturity mismatch between the hedging instrument and the risk being hedged.
 
B) Basis risk.
 
C) Japanese financial reporting requirements.
 
D) A trader having authority in the settlement process. 

nayizhenfeng

 The correct answer is D

In an effort to recover trading losses, Nick Leeson abandoned hedged arbitrage strategies on the Nikkei 225 in favor of extremely speculative strategies that exposed the firm to enormous risk in the event of a market downfall. His activities went undetected because his influence on the settlement process and back-office operations allowed him to report phony gains to management. Reporting requirements, basis risk, and maturity mismatch were not factors in the collapse.

nayizhenfeng

9、In general, the bankruptcy of Barings Bank might have been avoided with:

A) pricing models less vulnerable to model risk. 
 
B) a more moderate use of leverage.
 
C) stronger reporting and control systems. 
 
D) maturity matching between the hedging instrument and the asset being hedged. 

nayizhenfeng

 The correct answer is C

In general, the Barings Bank collapse was the result of poor operational controls characterized by poor reporting systems, weak management oversight, and poor organizational structure. Leeson’s dual responsibility for trading and settlement enabled him to hide trading losses in accounts that were not reported to management. Although a history of legal problems would have precluded him from trading on the LIFE, he was permitted to trade in Singapore. Model risk and leverage were issues in LTCM. Using short-term instruments to hedge long-term risk exposure was an issue in Metallgesellschaft.

nayizhenfeng

10、Nicholas Leeson is identified with which of the following?

A) Nikkei stock index futures.
 
B) Commodity Futures Trading Commission. 
 
C) Sumitomo. 
 
D) Metallgesellschaft AG. 

nayizhenfeng

 The correct answer is A

Nicholas Leeson was a trader for Barings PLC and was speculating in Nikkei options and futures.

[此贴子已经被作者于2009-7-2 13:09:02编辑过]