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In characterizing various dimensions of a bank’s data, the Basel Committee has suggested several principles to promote strong and effective risk data aggregation capabilities. Which statement correctly describes a recommendation that the bank should follow in accordance with the given principles?
A. The integrity principles recommends that data aggregation should be completely automated without any manual intervention. B. The completeness principles recommends that a financial institution shou…- 277
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The board of directors of a growing asset management company has recommended that the firm establish an ERM framework. Which of the following represents a key benefit that the firm will likely attain after establishing an ERM framework?
A. Allowing the company to determine and make use of a higher risk appetite. B. Finding the optimal reporting methodology for each risk function. C. Improving the top-down communication and coordinati…- 263
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A board of directors is evaluating the implementation of a new ERM program at an asset management company. Which statement below is consistent across the various current definitions of an ERM program and most appropriate to be included in the company’s ERM definition and goals?
A. The ERM program should reduce costs by transferring or insuring most of the company's major risk exposures. B. The major goal of the new ERM program should be to reduce earnings volatility. C.…- 259
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Which of the following statements regarding the responsibilities of the chief risk officer (CRO) is least accurate?
A. The CRO should provide the vision for the organization's risk management. B. In addition to providing overall leadership for risk, the CRO should communicate the organization's risk profi…- 452
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Which technique below does not contribute to credit risk mitigation?
A. Bond insurance B. Buy-and-hold C. Netting D. Collateralization- 109
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Under which circumstance, setting an independent risk management department will increase a bank’s value?
A. When the risk taken by the bank increases, the corresponding cost produced by the risk is low. B. There are different business lines within the bank, and each line manages its risk independently. C…- 209
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Which technique below does not contribute to credit risk mitigation?
A. Bond insurance B. Buy-and-hold C. Netting D. Collateralization- 162
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Under which circumstance, setting an independent risk management department will increase a bank’s value?
A. When the risk taken by the bank increase, the corresponding cost produced by the risk is low. B. There are different business lines within lines within the bank, and each line manages its risk inde…- 131
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Which of the following statements regarding risk and risk management is correct?
A. Risk management is more concerned with unexpected losses versus expected losses. B. There is a relationship between the amount of risk taken and the size of the potential loss. C. The final s…- 232
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Tom is evaluating the existing risk management system of RR Asset Management and identified the following two risks.
1. RR Asset Management's derivative pricing model consistently undervalues call options. 2. Swaps with counterparties exceed counterparty credit limit. These two risks are most likely to be class…- 153
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Which of the following statements regarding market, credit, and operational risk is correct?
A. People risk relates to the risk associated with incompetence and lack of suitable training of internal employees and/or external individuals. B. Between two counterparties, presettlement risk is al…- 279
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Jack is evaluating the existing risk management system of ABC Asset Management. She is asked to match the following events to the corresponding type of risk. Identify each numbered event as a market risk, credit risk, operational risk, or legal risk event.
1. Insufficient training leads to misuse of order management system. 2. Credit spreads widen following recent bankruptcies. 3. Option writer with counterparty cannot be netted because they originated …- 164
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Which of the following statements is incorrect regarding bootstrap historical simulation? The bootstrapping technique:
A. draws a sample from the original data set, records the VAR from that particular sample and "returns" the data. B. can be performed to estimate the expected shortfall(ES). C. is a simple a…- 192
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Which of the following statements accurately describe filtered historical simulation? Filtered historical sumulation:
A. is only reasonable for small portfolios, and empirical evidence does not support its predictive ability. B. is not flexible enough to capture conditional volatility and volatility clustering. C. is…- 129
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Which of the following non-parametric estimators combines the historical simulation model with conditional volatility models?
A. Filtered historical simulation. B. Volatility-weighted historic simulation. C. Correlation-weighted historic simulation. D. Age-weighted historic simulation.- 150
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With of the following items is not one of the advantages of non-parametric simulation methods?
A. Intuitive and often computationally simple. B. Not hindered by parametric violations of skewness. C. Data is not often readily availabel. D. Can accommodate more complex analysis.- 112
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Which of the following statements regarding disadvantages of non-parametric methods is least accurate?
A. Volatile data periods lead to VAR and ES estimates that are too low. B. Cannot accommodate plausible large impact events outside of the sample period. C. Difficult to detect structural shifts/regim…- 123
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Which of the following statements is least accurate regarding non-parametric density estimation?
A. Existing data points can be used to "smooth" the data points to allow for VAR calculation at all confidence levels. B. One of the advantages of non-parametric density estimation is that t…- 181
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Which of the following items accurately describe a disadvantage of non-parametric methods?
A. Difficult to estimate losses significantly larger than the maximum loss within the data set. B. Analysis depends critically on forecasted data. C. Volatile data periods lead to VAR and ES estimates…- 105
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Tim Jones is evaluating two mutual funds for an investment of $100,000. Mutual fund A has $20,000,000 in assets, an annual expected return of 14 percent, and an annual standard deviation of 19 percent. Mutual fund B has $8,000,000 in assets, an annual expected return of 12 percent, and an annual standard deviation of 16.5 percent. What is the daily value at risk (VAR) of Jones’ portfolio at a 5 percent probability if he invests his money in mutual fund A?
A. $38,480. B. $13,344. C. $1,668. D. $1,924.- 269
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Hugo Nelson is preparing a presentation on the attributes of value at rish. Which of Nelson’s following statements is not correct?
A. VAR can account for the diversified holdings of a financial institution, reducing capital requirements. B. VAR(1%) can be interpreted as the number of days that a loss in portfolio value will excee…- 358
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Which of the following statements about value at rish(VAR) is TRUE?
A. VAR is independent of probability level. B. VAR is not dependent on the choice of holding period. C. VAR decreases with longer holding periods. D. VAR decreases with lower confidence level.- 212
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