Errata (eg, FRM Handbook) or Key Exam Issue

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  1. Suzanne Evans

    EXAMPLE 28.5: FRM EXAM 2002—QUESTION 61

    Question: Under FAS 133, a derivative that currently has positive value a. Must be marked to market on a daily basis b. Necessarily affects the balance sheet and may affect earnings c. Remains off balance sheet if it had no value at inception d. Is marked to market if its current marked-to-market value is below its cost Answer: b) A derivative that has any nonzero value must appear...
    Question: Under FAS 133, a derivative that currently has positive value a. Must be marked to market on a daily basis b. Necessarily affects the balance sheet and may affect earnings c. Remains off balance sheet if it had no value at inception d. Is marked to market if its current marked-to-market value is below its cost Answer: b) A derivative that has any nonzero value must appear...
    Question: Under FAS 133, a derivative that currently has positive value a. Must be marked to market on a daily basis b. Necessarily affects the balance sheet and may affect earnings c. Remains off balance sheet if it had no value at inception d. Is marked to market if its current...
    Question: Under FAS 133, a derivative that currently has positive value a. Must be marked to market on a daily basis b. Necessarily affects the balance sheet and may affect earnings c....
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  2. Suzanne Evans

    EXAMPLE 28.4: FRM EXAM 1998—QUESTION 10

    Question: All of the following instruments are considered to be derivatives under FAS 133 except a. Futures contracts b. Total return swaps c. Credit default swaps d. Option contracts Answer: c) Credit default swaps do not necessarily satisfy the third condition, which is to allow net settlements.
    Question: All of the following instruments are considered to be derivatives under FAS 133 except a. Futures contracts b. Total return swaps c. Credit default swaps d. Option contracts Answer: c) Credit default swaps do not necessarily satisfy the third condition, which is to allow net settlements.
    Question: All of the following instruments are considered to be derivatives under FAS 133 except a. Futures contracts b. Total return swaps c. Credit default swaps d. Option contracts Answer: c) Credit default swaps do not necessarily satisfy the third condition, which is to allow net...
    Question: All of the following instruments are considered to be derivatives under FAS 133 except a. Futures contracts b. Total return swaps c. Credit default swaps d. Option contracts ...
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  3. Suzanne Evans

    EXAMPLE 28.3: FRM EXAM 2002—QUESTION 58

    Question: A key principle of FAS 133 is that a. Fair value is most appropriate for derivative instruments. b. The book value of derivative instruments is used to prepare financial statements. c. Derivative instruments are off–balance sheet items. d. Derivative instrument value is used for tax reporting only. Answer: a) The key principle of FAS 133 is that derivatives are off–balance...
    Question: A key principle of FAS 133 is that a. Fair value is most appropriate for derivative instruments. b. The book value of derivative instruments is used to prepare financial statements. c. Derivative instruments are off–balance sheet items. d. Derivative instrument value is used for tax reporting only. Answer: a) The key principle of FAS 133 is that derivatives are off–balance...
    Question: A key principle of FAS 133 is that a. Fair value is most appropriate for derivative instruments. b. The book value of derivative instruments is used to prepare financial statements. c. Derivative instruments are off–balance sheet items. d. Derivative instrument value is used for...
    Question: A key principle of FAS 133 is that a. Fair value is most appropriate for derivative instruments. b. The book value of derivative instruments is used to prepare financial...
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  4. Suzanne Evans

    EXAMPLE 28.2: FRM EXAM 2000—QUESTION 25

    Question: Marking to market on a futures contract that is long in London and short in Chicago can be handled by which of the following? I. Recording the close price in both locations II. Recording market prices at the same instant, regardless of time zones III. Recording market prices at the same local time in both locations IV. Forecasting the London price at 4 p.m. Chicago time a....
    Question: Marking to market on a futures contract that is long in London and short in Chicago can be handled by which of the following? I. Recording the close price in both locations II. Recording market prices at the same instant, regardless of time zones III. Recording market prices at the same local time in both locations IV. Forecasting the London price at 4 p.m. Chicago time a....
    Question: Marking to market on a futures contract that is long in London and short in Chicago can be handled by which of the following? I. Recording the close price in both locations II. Recording market prices at the same instant, regardless of time zones III. Recording market prices at...
    Question: Marking to market on a futures contract that is long in London and short in Chicago can be handled by which of the following? I. Recording the close price in both locations II....
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  5. Suzanne Evans

    EXAMPLE 28.1: FRM EXAM 1998—QUESTION 8

    Question: Which of the following price sources for derivative transactions is the most prudent for financial reporting purposes? a. Trader marks b. Valuation models c. Directly observable market prices d. Broker quotes Answer: c) Directly observable market quotes are least susceptible to price manipulation.
    Question: Which of the following price sources for derivative transactions is the most prudent for financial reporting purposes? a. Trader marks b. Valuation models c. Directly observable market prices d. Broker quotes Answer: c) Directly observable market quotes are least susceptible to price manipulation.
    Question: Which of the following price sources for derivative transactions is the most prudent for financial reporting purposes? a. Trader marks b. Valuation models c. Directly observable market prices d. Broker quotes Answer: c) Directly observable market quotes are least susceptible...
    Question: Which of the following price sources for derivative transactions is the most prudent for financial reporting purposes? a. Trader marks b. Valuation models c. Directly observable...
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  6. Suzanne Evans

    EXAMPLE 27.9: FRM EXAM 2004—QUESTION 12

    Question: Which of the following statements describe(s) the roles and responsibilities of the corporate officers for corporate reporting under the Sarbanes-Oxley Act of 2002? I. The chief executive officer (CEO) and chief financial officer (CFO) have the primary responsibility for the company’s reports filed with the SEC. II. The audit committee is responsible for the appointment and...
    Question: Which of the following statements describe(s) the roles and responsibilities of the corporate officers for corporate reporting under the Sarbanes-Oxley Act of 2002? I. The chief executive officer (CEO) and chief financial officer (CFO) have the primary responsibility for the company’s reports filed with the SEC. II. The audit committee is responsible for the appointment and...
    Question: Which of the following statements describe(s) the roles and responsibilities of the corporate officers for corporate reporting under the Sarbanes-Oxley Act of 2002? I. The chief executive officer (CEO) and chief financial officer (CFO) have the primary responsibility for the...
    Question: Which of the following statements describe(s) the roles and responsibilities of the corporate officers for corporate reporting under the Sarbanes-Oxley Act of 2002? I. The chief...
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  7. Suzanne Evans

    EXAMPLE 27.8: FRM EXAM 1998—QUESTION 24

    Question: If a bank executes a derivatives contract with a client for whom the transaction is not appropriate, the bank has a. Booked an illegal transaction b. Placed the bank’s reputation at risk due to potential litigation and credit risks c. An obligation to reverse the trade d. To closely monitor the market value to ensure that pre-settlement risk does not exceed the customer’s...
    Question: If a bank executes a derivatives contract with a client for whom the transaction is not appropriate, the bank has a. Booked an illegal transaction b. Placed the bank’s reputation at risk due to potential litigation and credit risks c. An obligation to reverse the trade d. To closely monitor the market value to ensure that pre-settlement risk does not exceed the customer’s...
    Question: If a bank executes a derivatives contract with a client for whom the transaction is not appropriate, the bank has a. Booked an illegal transaction b. Placed the bank’s reputation at risk due to potential litigation and credit risks c. An obligation to reverse the trade d. To...
    Question: If a bank executes a derivatives contract with a client for whom the transaction is not appropriate, the bank has a. Booked an illegal transaction b. Placed the bank’s reputation at...
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  8. Suzanne Evans

    EXAMPLE 27.7: FRM EXAM 2004—QUESTION 62

    Question: Which of the following are not considered events of termination under the ISDA master agreement? I. Misrepresentation II. Tax event upon corporate takeover III. Change in tax law that results in gross-up IV. Bankruptcy a. I and IV only b. I and III only c. II and III only d. II and IV only Answer: a) Default includes misrepresentation and bankruptcy. Termination...
    Question: Which of the following are not considered events of termination under the ISDA master agreement? I. Misrepresentation II. Tax event upon corporate takeover III. Change in tax law that results in gross-up IV. Bankruptcy a. I and IV only b. I and III only c. II and III only d. II and IV only Answer: a) Default includes misrepresentation and bankruptcy. Termination...
    Question: Which of the following are not considered events of termination under the ISDA master agreement? I. Misrepresentation II. Tax event upon corporate takeover III. Change in tax law that results in gross-up IV. Bankruptcy a. I and IV only b. I and III only c. II and III only ...
    Question: Which of the following are not considered events of termination under the ISDA master agreement? I. Misrepresentation II. Tax event upon corporate takeover III. Change in tax law...
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  9. Suzanne Evans

    EXAMPLE 27.6: FRM EXAM 2000—QUESTION 22

    Question: A typical master netting agreement as established by the ISDA will contain all of the following except a list of a. Obligations b. Historical market prices c. Credit provisions d. Contractual boilerplate statements Answer: b) A master agreement will contain a list of obligations, credit provisions, and boilerplate statements. There is no reason to have historical market prices.
    Question: A typical master netting agreement as established by the ISDA will contain all of the following except a list of a. Obligations b. Historical market prices c. Credit provisions d. Contractual boilerplate statements Answer: b) A master agreement will contain a list of obligations, credit provisions, and boilerplate statements. There is no reason to have historical market prices.
    Question: A typical master netting agreement as established by the ISDA will contain all of the following except a list of a. Obligations b. Historical market prices c. Credit provisions d. Contractual boilerplate statements Answer: b) A master agreement will contain a list of...
    Question: A typical master netting agreement as established by the ISDA will contain all of the following except a list of a. Obligations b. Historical market prices c. Credit provisions d....
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  10. Suzanne Evans

    EXAMPLE 27.5: FRM EXAM 1999—QUESTION 176

    Question: The framework in which the ISDA master agreement is used includes the master agreement, schedule, and confirmation. What is the order of precedence of these if any clauses conflict? a. Master agreement, schedule, confirmation b. Schedule, master agreement, confirmation c. Master agreement, confirmation, schedule d. Confirmation, schedule, master agreement Answer: d) The...
    Question: The framework in which the ISDA master agreement is used includes the master agreement, schedule, and confirmation. What is the order of precedence of these if any clauses conflict? a. Master agreement, schedule, confirmation b. Schedule, master agreement, confirmation c. Master agreement, confirmation, schedule d. Confirmation, schedule, master agreement Answer: d) The...
    Question: The framework in which the ISDA master agreement is used includes the master agreement, schedule, and confirmation. What is the order of precedence of these if any clauses conflict? a. Master agreement, schedule, confirmation b. Schedule, master agreement, confirmation c. Master...
    Question: The framework in which the ISDA master agreement is used includes the master agreement, schedule, and confirmation. What is the order of precedence of these if any clauses conflict? ...
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  11. Suzanne Evans

    EXAMPLE 27.4: FRM EXAM 1999—QUESTION 175

    Question: The ISDA master agreement and other, similar agreements for derivative contracts address primarily a. Legal and credit risk b. Market and legal risk c. Legal and operational risk d. Liquidity and legal risk Answer: a) The master agreement deals primarily with legal issues in case of default.
    Question: The ISDA master agreement and other, similar agreements for derivative contracts address primarily a. Legal and credit risk b. Market and legal risk c. Legal and operational risk d. Liquidity and legal risk Answer: a) The master agreement deals primarily with legal issues in case of default.
    Question: The ISDA master agreement and other, similar agreements for derivative contracts address primarily a. Legal and credit risk b. Market and legal risk c. Legal and operational risk d. Liquidity and legal risk Answer: a) The master agreement deals primarily with legal issues in...
    Question: The ISDA master agreement and other, similar agreements for derivative contracts address primarily a. Legal and credit risk b. Market and legal risk c. Legal and operational risk ...
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  12. Suzanne Evans

    EXAMPLE 27.3: FRM EXAM 2001—QUESTION 124

    Question: Most credit derivatives contracts a. Are based on English law b. Are written on a one-off basis c. Have a clause about restructuring d. Are based on the ISDA agreement Answer: d) Most derivatives contracts are based on the standard form provided by the ISDA, which ensures uniformity in contracts and reduces legal uncertainty.
    Question: Most credit derivatives contracts a. Are based on English law b. Are written on a one-off basis c. Have a clause about restructuring d. Are based on the ISDA agreement Answer: d) Most derivatives contracts are based on the standard form provided by the ISDA, which ensures uniformity in contracts and reduces legal uncertainty.
    Question: Most credit derivatives contracts a. Are based on English law b. Are written on a one-off basis c. Have a clause about restructuring d. Are based on the ISDA agreement Answer: d) Most derivatives contracts are based on the standard form provided by the ISDA, which ensures...
    Question: Most credit derivatives contracts a. Are based on English law b. Are written on a one-off basis c. Have a clause about restructuring d. Are based on the ISDA agreement Answer:...
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  13. Suzanne Evans

    EXAMPLE 27.2: FRM EXAM 2002—QUESTION 117

    Question: You are an investment manager trying to decide whether the Chicago Mercantile Exchange, the Chicago Board of Trade, or the OTC marketplace is where you will place part of your portfolio hedge. You will have to make an OTC transaction with your broker in any case. You also are considering a direct OTC deal with your broker for the whole hedge. You want to carry out the transaction...
    Question: You are an investment manager trying to decide whether the Chicago Mercantile Exchange, the Chicago Board of Trade, or the OTC marketplace is where you will place part of your portfolio hedge. You will have to make an OTC transaction with your broker in any case. You also are considering a direct OTC deal with your broker for the whole hedge. You want to carry out the transaction...
    Question: You are an investment manager trying to decide whether the Chicago Mercantile Exchange, the Chicago Board of Trade, or the OTC marketplace is where you will place part of your portfolio hedge. You will have to make an OTC transaction with your broker in any case. You also are...
    Question: You are an investment manager trying to decide whether the Chicago Mercantile Exchange, the Chicago Board of Trade, or the OTC marketplace is where you will place part of your portfolio...
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  14. Suzanne Evans

    EXAMPLE 27.1: FRM EXAM 2002—QUESTION 60

    Question: Lawsuits involving derivatives to major corporations are most likely to involve which of the following issues? a. The type of derivative b. Broker size c. Breach of fiduciary duty d. Enforceability of contract Answer: d) Most derivatives lawsuits arise from interpretation of the provisions of the contract. There is generally no fiduciary duty issue, as most contracts are...
    Question: Lawsuits involving derivatives to major corporations are most likely to involve which of the following issues? a. The type of derivative b. Broker size c. Breach of fiduciary duty d. Enforceability of contract Answer: d) Most derivatives lawsuits arise from interpretation of the provisions of the contract. There is generally no fiduciary duty issue, as most contracts are...
    Question: Lawsuits involving derivatives to major corporations are most likely to involve which of the following issues? a. The type of derivative b. Broker size c. Breach of fiduciary duty d. Enforceability of contract Answer: d) Most derivatives lawsuits arise from interpretation of...
    Question: Lawsuits involving derivatives to major corporations are most likely to involve which of the following issues? a. The type of derivative b. Broker size c. Breach of fiduciary duty ...
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  15. Suzanne Evans

    EXAMPLE 26.14: FRM EXAM 2000—QUESTION 69

    Question: Which of the following strategies can contribute to minimizing operational risk? I. Individuals responsible for committing to transactions should perform clearance and accounting functions. II. To value current positions, price information should be obtained from external sources. III. Compensation schemes for traders should be directly linked to calendar revenues. IV. Trade...
    Question: Which of the following strategies can contribute to minimizing operational risk? I. Individuals responsible for committing to transactions should perform clearance and accounting functions. II. To value current positions, price information should be obtained from external sources. III. Compensation schemes for traders should be directly linked to calendar revenues. IV. Trade...
    Question: Which of the following strategies can contribute to minimizing operational risk? I. Individuals responsible for committing to transactions should perform clearance and accounting functions. II. To value current positions, price information should be obtained from external...
    Question: Which of the following strategies can contribute to minimizing operational risk? I. Individuals responsible for committing to transactions should perform clearance and accounting...
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  16. Suzanne Evans

    EXAMPLE 26.13: FRM EXAM 2004—QUESTION 37

    Question: Which of the following statements is (are) true? I. To ensure higher effectiveness in managing operational risk, the operational risk manager’s compensation should be linked to trader performance. II. Stop-loss limits are less effective as an operational risk measure than exposure limits, because exposure limits consider future market risk movements, while stop-loss limits are...
    Question: Which of the following statements is (are) true? I. To ensure higher effectiveness in managing operational risk, the operational risk manager’s compensation should be linked to trader performance. II. Stop-loss limits are less effective as an operational risk measure than exposure limits, because exposure limits consider future market risk movements, while stop-loss limits are...
    Question: Which of the following statements is (are) true? I. To ensure higher effectiveness in managing operational risk, the operational risk manager’s compensation should be linked to trader performance. II. Stop-loss limits are less effective as an operational risk measure than exposure...
    Question: Which of the following statements is (are) true? I. To ensure higher effectiveness in managing operational risk, the operational risk manager’s compensation should be linked to...
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  17. Suzanne Evans

    EXAMPLE 26.12: FRM EXAM 1999—QUESTION 162

    Question: The best example of an effective risk control function is a unit that a. Uncovers numerous control exceptions, violations of law, and procedural errors while maintaining a noncontroversial relationship with risk-taking personnel b. Is staffed by competent personnel who report to the head of the trading department while maintaining independence from front-office personnel c....
    Question: The best example of an effective risk control function is a unit that a. Uncovers numerous control exceptions, violations of law, and procedural errors while maintaining a noncontroversial relationship with risk-taking personnel b. Is staffed by competent personnel who report to the head of the trading department while maintaining independence from front-office personnel c....
    Question: The best example of an effective risk control function is a unit that a. Uncovers numerous control exceptions, violations of law, and procedural errors while maintaining a noncontroversial relationship with risk-taking personnel b. Is staffed by competent personnel who report to...
    Question: The best example of an effective risk control function is a unit that a. Uncovers numerous control exceptions, violations of law, and procedural errors while maintaining a...
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  18. Suzanne Evans

    EXAMPLE 26.11: FRM EXAM 1999—QUESTION 165

    Question: All of the following would strengthen the internal controls for sales personnel except a. Tape-recording of incoming and outgoing calls b. Prompt confirmation of trades and acquisition of completed legal agreements c. Compensation schemes directly linked to calendar-year revenues d. Independent credit department personnel reviewing and approving, as deemed appropriate, all...
    Question: All of the following would strengthen the internal controls for sales personnel except a. Tape-recording of incoming and outgoing calls b. Prompt confirmation of trades and acquisition of completed legal agreements c. Compensation schemes directly linked to calendar-year revenues d. Independent credit department personnel reviewing and approving, as deemed appropriate, all...
    Question: All of the following would strengthen the internal controls for sales personnel except a. Tape-recording of incoming and outgoing calls b. Prompt confirmation of trades and acquisition of completed legal agreements c. Compensation schemes directly linked to calendar-year...
    Question: All of the following would strengthen the internal controls for sales personnel except a. Tape-recording of incoming and outgoing calls b. Prompt confirmation of trades and...
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  19. Suzanne Evans

    EXAMPLE 26.10: FRM EXAM 2002—QUESTION 132

    Question: The following is not a problem of having one employee perform trading functions and back-office functions. a. The employee gets paid more because she performs two functions. b. The employee can hide trading mistakes when processing the trades. c. The employee can hide the size of her book. d. The employee’s firm may not know its true exposure. Answer: a) Answers b), c), and...
    Question: The following is not a problem of having one employee perform trading functions and back-office functions. a. The employee gets paid more because she performs two functions. b. The employee can hide trading mistakes when processing the trades. c. The employee can hide the size of her book. d. The employee’s firm may not know its true exposure. Answer: a) Answers b), c), and...
    Question: The following is not a problem of having one employee perform trading functions and back-office functions. a. The employee gets paid more because she performs two functions. b. The employee can hide trading mistakes when processing the trades. c. The employee can hide the size of...
    Question: The following is not a problem of having one employee perform trading functions and back-office functions. a. The employee gets paid more because she performs two functions. b. The...
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  20. Suzanne Evans

    EXAMPLE 26.9: FRM EXAM 2000—QUESTION 63

    Question: Which one of the following statements about operations risk is not correct? a. The operations unit for derivatives activities, consistent with other trading and investment activities, should report to an independent unit and should be managed independently of the business unit. b. It is essential that operational units be able to capture all relevant details of transactions,...
    Question: Which one of the following statements about operations risk is not correct? a. The operations unit for derivatives activities, consistent with other trading and investment activities, should report to an independent unit and should be managed independently of the business unit. b. It is essential that operational units be able to capture all relevant details of transactions,...
    Question: Which one of the following statements about operations risk is not correct? a. The operations unit for derivatives activities, consistent with other trading and investment activities, should report to an independent unit and should be managed independently of the business unit. b....
    Question: Which one of the following statements about operations risk is not correct? a. The operations unit for derivatives activities, consistent with other trading and investment...
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  21. Suzanne Evans

    EXAMPLE 26.8: FRM EXAM 1998—QUESTION 9

    Question: The members of the board of directors should have which of the following responsibilities related to risk management? I. The board must approve the firm’s risk management policies and procedures. II. The board must be able to evaluate the performance of risk management activities. III. The board must maintain oversight of risk management activities. a. I and II only b. II...
    Question: The members of the board of directors should have which of the following responsibilities related to risk management? I. The board must approve the firm’s risk management policies and procedures. II. The board must be able to evaluate the performance of risk management activities. III. The board must maintain oversight of risk management activities. a. I and II only b. II...
    Question: The members of the board of directors should have which of the following responsibilities related to risk management? I. The board must approve the firm’s risk management policies and procedures. II. The board must be able to evaluate the performance of risk management...
    Question: The members of the board of directors should have which of the following responsibilities related to risk management? I. The board must approve the firm’s risk management policies...
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  22. Suzanne Evans

    EXAMPLE 26.7: FRM EXAM 1998—QUESTION 7

    Question: Independent credit risk management should be responsible for I. Approving credit exposure measurement standards II. Setting credit limits and monitoring adherence to such limits III. Reviewing counterparty creditworthiness and concentration of credit risk a. I only b. II only c. I and II only d. I, II, and III Answer: d) Credit risk managers go through all the steps in...
    Question: Independent credit risk management should be responsible for I. Approving credit exposure measurement standards II. Setting credit limits and monitoring adherence to such limits III. Reviewing counterparty creditworthiness and concentration of credit risk a. I only b. II only c. I and II only d. I, II, and III Answer: d) Credit risk managers go through all the steps in...
    Question: Independent credit risk management should be responsible for I. Approving credit exposure measurement standards II. Setting credit limits and monitoring adherence to such limits III. Reviewing counterparty creditworthiness and concentration of credit risk a. I only b. II...
    Question: Independent credit risk management should be responsible for I. Approving credit exposure measurement standards II. Setting credit limits and monitoring adherence to such limits ...
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  23. Suzanne Evans

    EXAMPLE 26.6: FRM EXAM 1999—QUESTION 164

    Question: When would it be prudent for a trader to direct accounting entries? a. Never b. When senior management of the firm and the board of directors are aware and have approved the practice on an exception basis c. When audit controls are such that the entries are reviewed on a regular basis to ensure detection of irregularities d. Solely during such times as staffing turnover...
    Question: When would it be prudent for a trader to direct accounting entries? a. Never b. When senior management of the firm and the board of directors are aware and have approved the practice on an exception basis c. When audit controls are such that the entries are reviewed on a regular basis to ensure detection of irregularities d. Solely during such times as staffing turnover...
    Question: When would it be prudent for a trader to direct accounting entries? a. Never b. When senior management of the firm and the board of directors are aware and have approved the practice on an exception basis c. When audit controls are such that the entries are reviewed on a regular...
    Question: When would it be prudent for a trader to direct accounting entries? a. Never b. When senior management of the firm and the board of directors are aware and have approved the...
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  24. Suzanne Evans

    EXAMPLE 26.5: FRM EXAM 2004—QUESTION 58

    Question: A sound risk management process would include which of the following primary components? I. A comprehensive risk measurement approach II. A detailed structure of limits III. Guidelines and other parameters used to govern risk taking IV. Strong risk management unit with a dual reporting relationship to the firm’s head trader and chief risk officer a. I, II, and IV only b....
    Question: A sound risk management process would include which of the following primary components? I. A comprehensive risk measurement approach II. A detailed structure of limits III. Guidelines and other parameters used to govern risk taking IV. Strong risk management unit with a dual reporting relationship to the firm’s head trader and chief risk officer a. I, II, and IV only b....
    Question: A sound risk management process would include which of the following primary components? I. A comprehensive risk measurement approach II. A detailed structure of limits III. Guidelines and other parameters used to govern risk taking IV. Strong risk management unit with a dual...
    Question: A sound risk management process would include which of the following primary components? I. A comprehensive risk measurement approach II. A detailed structure of limits III....
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  25. Suzanne Evans

    EXAMPLE 26.4: FRM EXAM 2002—QUESTION 103

    Question: Consider a bank that wants to have an amount of capital so that it can absorb unexpected losses corresponding to a firm-wide VAR at the 1% level. It measures firm-wide VAR by adding up the VARs for market risk, operational risk, and credit risk. There is a risk that the bank has too little capital because a. It does not take into account the correlations among risks. b. It...
    Question: Consider a bank that wants to have an amount of capital so that it can absorb unexpected losses corresponding to a firm-wide VAR at the 1% level. It measures firm-wide VAR by adding up the VARs for market risk, operational risk, and credit risk. There is a risk that the bank has too little capital because a. It does not take into account the correlations among risks. b. It...
    Question: Consider a bank that wants to have an amount of capital so that it can absorb unexpected losses corresponding to a firm-wide VAR at the 1% level. It measures firm-wide VAR by adding up the VARs for market risk, operational risk, and credit risk. There is a risk that the bank has too...
    Question: Consider a bank that wants to have an amount of capital so that it can absorb unexpected losses corresponding to a firm-wide VAR at the 1% level. It measures firm-wide VAR by adding up...
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  26. Suzanne Evans

    EXAMPLE 26.3: FRM EXAM 1999—QUESTION 160

    Question: The risk that one of the parties will fail to meet its obligation to make payments in a swap agreement is called a. Counterparty risk b. Operational risk c. Market risk d. Notional risk Answer: a) This also belongs to the credit risk category.
    Question: The risk that one of the parties will fail to meet its obligation to make payments in a swap agreement is called a. Counterparty risk b. Operational risk c. Market risk d. Notional risk Answer: a) This also belongs to the credit risk category.
    Question: The risk that one of the parties will fail to meet its obligation to make payments in a swap agreement is called a. Counterparty risk b. Operational risk c. Market risk d. Notional risk Answer: a) This also belongs to the credit risk category.
    Question: The risk that one of the parties will fail to meet its obligation to make payments in a swap agreement is called a. Counterparty risk b. Operational risk c. Market risk d....
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  27. Suzanne Evans

    EXAMPLE 26.2: FRM EXAM 2001—QUESTION 130

    Question: Liquidity risk is the risk that I. The markets become less active, making it difficult to exit II. The offices get flooded III. It becomes difficult to borrow money IV. The process for settlement becomes less smooth a. I and II b. II and III c. I and III d. I and IV Answer: c) Liquidity risk arises as asset liquidity risk, when transactions cannot be conducted at...
    Question: Liquidity risk is the risk that I. The markets become less active, making it difficult to exit II. The offices get flooded III. It becomes difficult to borrow money IV. The process for settlement becomes less smooth a. I and II b. II and III c. I and III d. I and IV Answer: c) Liquidity risk arises as asset liquidity risk, when transactions cannot be conducted at...
    Question: Liquidity risk is the risk that I. The markets become less active, making it difficult to exit II. The offices get flooded III. It becomes difficult to borrow money IV. The process for settlement becomes less smooth a. I and II b. II and III c. I and III d. I and IV ...
    Question: Liquidity risk is the risk that I. The markets become less active, making it difficult to exit II. The offices get flooded III. It becomes difficult to borrow money IV. The...
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  28. Suzanne Evans

    EXAMPLE 26.1: FRM EXAM 2004—QUESTION 47

    Question: The failure of Barings Bank is a typical example of a lack in control pertaining to which one of the following risks: a. Liquidity risk b. Credit risk c. Operational risk d. Foreign exchange risk Answer: c) The Barings failure falls in the category of operational risk because of a breakdown in procedures. The trader, Nick Leeson, had control of the back office.
    Question: The failure of Barings Bank is a typical example of a lack in control pertaining to which one of the following risks: a. Liquidity risk b. Credit risk c. Operational risk d. Foreign exchange risk Answer: c) The Barings failure falls in the category of operational risk because of a breakdown in procedures. The trader, Nick Leeson, had control of the back office.
    Question: The failure of Barings Bank is a typical example of a lack in control pertaining to which one of the following risks: a. Liquidity risk b. Credit risk c. Operational risk d. Foreign exchange risk Answer: c) The Barings failure falls in the category of operational risk because...
    Question: The failure of Barings Bank is a typical example of a lack in control pertaining to which one of the following risks: a. Liquidity risk b. Credit risk c. Operational risk d....
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  29. Suzanne Evans

    EXAMPLE 25.4: FRM EXAM 2003—QUESTION 56

    Question: Following up on the previous question, the RAROC for this business line is: a. 26.7% b. 37.1% c. 21.2% d. 32.2% Answer: d) Dividing by economic capital gives a RAROC of 2.4125/7.5 = 32.2%.
    Question: Following up on the previous question, the RAROC for this business line is: a. 26.7% b. 37.1% c. 21.2% d. 32.2% Answer: d) Dividing by economic capital gives a RAROC of 2.4125/7.5 = 32.2%.
    Question: Following up on the previous question, the RAROC for this business line is: a. 26.7% b. 37.1% c. 21.2% d. 32.2% Answer: d) Dividing by economic capital gives a RAROC of 2.4125/7.5 = 32.2%.
    Question: Following up on the previous question, the RAROC for this business line is: a. 26.7% b. 37.1% c. 21.2% d. 32.2% Answer: d) Dividing by economic capital gives a RAROC of...
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  30. Suzanne Evans

    EXAMPLE 25.3: FRM EXAM 2003—QUESTION 55

    Question: Suppose that a business line of a bank has a loan book of $100 million. The average interest rate is 10%. The book is funded at a cost of $5.5 million. The economic capital against these loans is $7.5 million (7.5% of the loan value) and is invested in low-risk securities earning 5.5% per annum. Operating costs are $1.5 million per annum, and the expected loss on this portfolio is...
    Question: Suppose that a business line of a bank has a loan book of $100 million. The average interest rate is 10%. The book is funded at a cost of $5.5 million. The economic capital against these loans is $7.5 million (7.5% of the loan value) and is invested in low-risk securities earning 5.5% per annum. Operating costs are $1.5 million per annum, and the expected loss on this portfolio is...
    Question: Suppose that a business line of a bank has a loan book of $100 million. The average interest rate is 10%. The book is funded at a cost of $5.5 million. The economic capital against these loans is $7.5 million (7.5% of the loan value) and is invested in low-risk securities earning 5.5%...
    Question: Suppose that a business line of a bank has a loan book of $100 million. The average interest rate is 10%. The book is funded at a cost of $5.5 million. The economic capital against...
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    Views:
    1

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