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Last Updated: Jun 12, 2026
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1. Which of the following statements describes a bank's reasons to set risk limits?
I. To control and minimize a bank's current risk exposure.
II. To predict future risks.
III. To allocate risks to business units.
IV.
To keep risk within tolerance levels.
A) I and II
B) III and IV
C) I, III, and IV
D) I, II, and III
2. Which of the following statements defines Value-at-risk (VaR)?
A) VaR is the worst possible loss on a financial instrument or a portfolio of financial instruments over a given time period.
B) VaR is the maximum likely loss on a financial instrument or a portfolio of financial instruments over a given time period with a given degree of probabilistic confidence.
C) VaR is the minimum likely loss on a financial instrument or a portfolio of financial instruments with a given degree of probabilistic confidence.
D) VaR is the maximum of past losses over a given period of time.
3. When a credit risk manager analyzes default patterns in a specific neighborhood, she finds that defaults are increasing as the stigma of default evaporates, and more borrowers default. This phenomenon constitutes
A) Moral hazard
B) Herd behavior
C) Speculative bias
D) Adverse selection
4. As an example of the balance sheet effect, if rates rise, Delta Bank can expect:
A) Its fixed rate assets to increase in value, although that effect will be offset by a reduction in the value of its fixed rate liabilities.
B) Its fixed rate assets to increase in value, while that effect will be amplified by a reduction in the value of its fixed rate liabilities.
C) Its fixed rate assets to drop in value, although that effect will be offset by a reduction in the value of its fixed rate liabilities.
D) Its fixed rate assets to drop in value, while that effect will be amplified by a reduction in the value of its fixed rate liabilities.
5. To estimate the price of gold forwards, an investment analyst focuses on the cost of holding physical gold (bullion) and the cost of shorting the same. Given that physical gold spot price is $1,000, the annual risk-free rate is 5%, and the gold lease rate equals 2% annually, the analyst's best estimate of the gold forward price to equal
A) $1100
B) $950
C) $1070
D) $1030
Solutions:
| Question # 1 Answer: C | Question # 2 Answer: B | Question # 3 Answer: B | Question # 4 Answer: C | Question # 5 Answer: D |
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