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5、The yield on corporate bonds is currently 7.50 percent and the yield on comparable maturity Treasury bonds is currently 6.75 percent. The risk of an increase in corporate bond yield caused by uncertainty over upcoming presidential elections with no change in the Treasury yield, is called:

A) business risk.
 
B) credit risk.
 
C) political risk.
 
D) country risk.

nayizhenfeng

The correct answer is B

The increase in the yield of corporate bonds with no change in the yield of the Treasury bonds is due to the credit spread risk component of credit risk. Business risk is the risk measured using earnings volatility analysis. Country risk is the result of doing business outside the home country. Political risk is a component of country risk.

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6、Which of the following factors determines the diversification benefits of any specific level within a financial conglomerate?

A) Capital adequacy.
 
B) Number of risk factors.
 
C) Double leverage.
 
D) Market forces.

nayizhenfeng

The correct answer is B

The factors that determine diversification benefits are correlation, number of risks (positions), and concentration of risk factors (positions).

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7、Which level generates the greatest diversification benefits?

A) Portfolio level.
 
B) Financial conglomerate level.
 
C) Business unit level.
 
D) Holding company level.

nayizhenfeng

The correct answer is A

The portfolio level has the greatest diversification benefits, decreasing at the business unit level, with the least amount of diversification occurring at the holding company level.

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8、Which of the following factors determine the benefits from risk aggregation at any level within a financial conglomerate?

Size of positions
Number of positions
Correlations among risk factors
A) II and III only.
 
B) I and III only.
 
C) I and II only.
 
D) I, II, and III.

nayizhenfeng

The correct answer is D

Low correlations, a large number of positions, and low weightings of individual portfolio positions combine to maximize the benefits of diversification.

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AIM 6: Discuss, in accordance with the New Basel Accord, the 3+1 pillars approach for capital regulation of financial conglomerates.

 

1、The proposed 3+1 framework for capital regulation of financial conglomerates proposes policy modifications to the new Basel Accord (Basel II) to better address the unique needs of conglomerates. The suggested modification that focuses on preventing the contagion risk of financial conglomerates is the:

A) legal-based approach.
 
B) supervisory-based approach.
 
C) market-based approach.
 
D) rules-based approach.

nayizhenfeng

The correct answer is A

The legal-based approach develops legal firewalls to prevent potential contagion risk from imploding the financial conglomerate.