It was a crazy day for me. I spent half a year to repare, and went through almost all the required reading materials. Still there were some questions I cann't figure out a way to tackle (perhaps 10%-15%). In most other cases, I have to guess among two or three alternatives. Out of the 80 questions, I'm comfortable with 1/3-2/3 of the answers I chose.
Questions were not so quantitative, so I can finish almost all the 80 questions within 4 hours.
To reciprocate to this forum, I put down something I still remember... some of them might not be correctly recalled though...
1. We expect to see the lowest correlation among the returns of which type of hedge fund strategy (exogeneity in strategies): A. equity market neutral; B. short bias investment; C. stressed securities; D...
2. With a total of four asset classes (equity, bond, FX, commodity), Given the data of benchmark weight, benchmark return, and the return of allocated assets, tell the one asset that make the most part of contribution of active returns.
3. About measuring correlation: I only remember one answer says when there is large outlier data in returns, use Kendall’s Tau to generate a conservative measure of correlation.
4. Case analysis: XYZ is a bank in emerging market, which is planning to issue CDO and now considers to provide credit enhancement. out of the 3 questions I only remember two of them
Q1.which of following alternative is most appropriate: A. XYZ provide a guarantee; B. XYZ buy USD cross currency swap; C. both . D. ...
Q2. I only remember one answer says if XYZ reduces the total issuance amount from 180 million to 160 million, it will increase the credit quality of the whole issuance.
5. Case analysis: Bank ABC is the main lender for AMC, a MBS originator. The credit line given to AMC is structured to depend on its credit rating and average duration of the loans (currently 5 years) in its asset pool. The current credit limit is set at 60 million (60=300million/5 years). Recently rating agencies downgraded AMC from A to BBB, which led to the breach of its current credit limit. ABC don’t want to cut down its credit line to AMC directly to hurt the client relationship, so it considers to hedge the credit risk by buying CDS.
Q1. the major consideration for ABC for the proposal by a CDS counterparty shall be: A. cost of the hedging; B. correlation between AMC and this counterparty
Q2. the board of ABC should do want risk plan: A. revise its risk concentration limit B. allow more room to catch business opportunities with AMC if the situation later turn better, by adapting its current credit limit system.
6. The market spread and OAS model spread of a bond is given (where the market spread>OAS). Make judgement which statement is correct: A. the bond is over-valued; B. under-valued
7. Some European central banks pushed their benchmark interests to the negative zone. It indicates when modeling short term interest rate we shall A. use lognormal distribution B. use normal distribution but set the rate equal to zero whenever there is negative rate
8. Swiss central bank gave up its constraint put on CHF on date ??. See a plot of historical exchange rates between CHF/EUR, GBP/CHF, GBP/EUR,
Q1. which of following statements is correct prediction: A. the correlation between EUR/CHF and between CHF/GBP will increase in the future. B…
Q2. a Swiss exporter has CHF import from other European countries and sell domestically. It put CHF deposit to and have EUR loan from the bank. After the exchange rate constraint is removed, what’s the impact on the bank’s counterparty risk with the exporter?
9. Impact of using CVA vs credit limit: CVA encourages fewer trading counterparties.
10. See a plotted profile of potential future exposure, and tell what is the underlying derivatives for this exposure A. interest rate swap with collateral call requirement
11. choose the correct plot of the relation between CDS value and correlation between the default probabilities of the underlying asset and the protect supplier.
12. see a plot of the volatility smirk of a stock, and indicate which plot correctly show the implied distribution of the stock price in the future as against a log normal distribution indicates. I chose the one that reflect fatter tail in the leftward.