nayizhenfeng

 

2、Regarding VAR, which of the following is NOT a concern? VAR:

A) provides no information about the tail region exceeding VAR.

B) fails basic criteria for a coherent risk measure.   

C) measures risk at only one point.  

D) usually overestimates the risk of large losses.

nayizhenfeng

 

The correct answer is D

 

VAR usually underestimates the risk of large losses.

nayizhenfeng

 

3、Which of the following is NOT a criteria of a coherent risk measure?

      I. homogeneity – larger positions bring larger risk.

     II. monotonicity – larger returns come with larger risk.

    III. subadditivity – the risk of the sum is more than or equal to the sum of the risks.

    IV. risk-free condition – risk-free assets should have less risk.

A) I and II.  

B) III and IV.

C) I and III.  

D) II and III.

nayizhenfeng

 

The correct answer is B

 

Subadditivity – the risk of the sum is less than or equal to the sum of the risks. Risk-free condition – risk-free assets should be risk less.

nayizhenfeng

 

4、Which of the following should NOT be included in estimating LGD?

A) The debt position in capital structure.  

B) Debt securitization. 

C) Speculative grade discount rate. 

D) Business cycle.

nayizhenfeng

 

The correct answer is C

 

The correct discount rate should be based on the firm in default.

nayizhenfeng

 

5、Which of the following is NOT true about loan equivalency factor (LEQ)?

A) LEQ estimates are narrowly dispersed.  

B) LEQ provides estimates of commitment drawdown. 

C) LEQ needs to be differentiated by credit quality.   

D) LEQ needs to be differentiated by facility type.

nayizhenfeng

 

The correct answer is A

 

LEQ estimates are widely dispersed.

nayizhenfeng

 

AIM 20: Explain issues regarding the implementation of Pillar 2 (Supervision) and Pillar 3 (Market Discipline) of Basel II.

1、Pillar III of the Basel II accord includes all of the following requirements for internationally active banks EXCEPT:

A) a formal disclosure policy should be established, and supported by a bank’s board of directors. 

B) banks should operate above minimum regulatory capital ratios. 

C) financial statements that fairly reflect financial condition should be published regularly.

D) there should be specific remedial actions in the event of nondisclosure.

nayizhenfeng

 

The correct answer is B

 

The requirement to operate above minimum regulatory capital ratios is a requirement laid out in Pillar II regarding the interaction of supervisors and internationally active banks. Note that Pillar III relates to market discipline and disclosure.