NO.16 A corporate bond was trading with 2%probability of default and 60% loss given default. Due to the credit
crisis the probability of default increased to 10% and the loss given default increased to 100%. Assuming that
the risk premium remained the same how did the credit spread change?

NO.17 Except for the credit quality of the Credit Default Swap protection seller, the following relationship correctly
approximates the yield on a risk-free instrument:

NO.18 To estimate the responsiveness of a particular equity portfolio to the overall market, a trader should use the
portfolio’s

NO.19 Which of the following are conclusions that could be drawn from the shape of the statistical distribution of
losses that a bank might incur over a future time period?
I. In most years a bank would look more profitable than it will be on average.
II. Most of the time a sufficiently well capitalized bank will appear over-capitalized.
III. Bad years do not come along very often, but when they do they lead to enormous losses.

NO.20 On January 1, 2010 the TED (treasury-euro dollar) spread was 0.9%, and on January 31, 2010 the TED spread
is 0.4%. As a risk manager, how would you interpret this change?

NO.21 Which one of the four following aspects of legal risk is NOT included in the Basel II Accord?

NO.22 To safeguard its capital and obtain insurance if the borrowers cannot repay their loans, Gamma Bank accepts
financial collateral to manage its credit risk and mitigate the effect of the borrowers’ defaults. Gamma Bank
will typically accept all of the following instruments as financial collateral EXCEPT?

NO.23 Which one of the following four examples would not be considered a typical source of market risk?

NO.24 Which of the following statements regarding collateralized debt obligations (CDOs) is correct?
I. CDOs typically have loans or bonds as underlying collateral.
II. CDOs generally less risky than CMOs.
III. There is a correlation among defaults in the CDO collateral which should be considered in valuation of
these complex instruments.

NO.25 Which one of the following four statements describes the advantage of using delta-gamma method of mapping
options positions over delta-normal method?
Delta-gamma method

NO.26 Changes to which one of the following four factors would typically not increase the cost of credit?

NO.27 Bank Muri has $4 million in cash and $5 million in loans coming due tomorrow with an expected default rate
of 1%. The proceeds will be deposited overnight. The bank owes $ 9 million on a securities purchase that
settles in two days and pays off $8 million in commercial paper in three days that is not expected to renew. On
day 2, $1 million in loans is coming in with an expected default rate of 1% and on day 3, $2 million in loans is
coming in with expected default rate of 2%. How much should the bank plan to raise in order to avoid liquidity
problems?

NO.28 For a bank a 1-year VaR of USD 10 million at 95% confidence level means that:

NO.29 Which of the following correctly identifies reasons for collecting internal operational risk event and loss
information?
I. Assessing the risk of specific areas of concern.
II. Evaluating risk events and outcomes.
III. Collecting data for capital modeling.
IV. Getting insight into risk events in other firms in the industry.

NO.30 To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a
credit portfolio manager should use the following metric:

NO.31 Which one of the following four exotic option types has another option as its underlying asset, and as a result
of its construction is generally believed to be very difficult to model?

NO.32 Which of the following statements regarding CDO-squared is correct?
I. CDO-squared use other CDOs and CMOs as collateral.
II. Risk assessment of CDO-squared is almost impossible due to their complexity.
III. CDO-squared have lower credit risk than CMOs but higher than CDOs.

NO.33 Which one of the following four statements presents a challenge of using external loss databases in the
operational risk framework?