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Exam Feedback November 2017 Part 2 Exam Feedback

Dipanjan

New Member
There is one question that has been bothering me since the exam. It was seemingly straight forward, but maybe I was overthinking. It was the binomial interest rate tree problem to compute the price of the bond. The tree gave 6 month forward rates 6 months from now. My understanding is they needed to be converted to spot rate equivalents prior to discounting? Am I alone or did anyone else come to this conclusion.

The test was, I presume, if a candidate knows (1+r/2) as a discounting factor and two times discounting
 

Dipanjan

New Member
I used the formula diff in weights [Wp-Wb]*return on benchmark and obtained answer as .28% not sure I used the right formula for asset allocation.
I found the language convoluted

Asset allocation return from security selection or something.
If they are asking about asset allocation return you are correct
 

Dipanjan

New Member
For 6. I got answer D. Where I thought the answer was a smile.
For 15. I arrived at 18%
For 18. I chose 10 year FX forward + 10 year IRS. IRS for the intermediate payments and fx forward as the majority of the exposure is tied to the final payment.
For 31. I chose audit is the independent third line of defense

6. Option D is correct but it was a frown i reckon
15. Forgot the answer
18. Same
31 had a hard time selecting btwn security and independent audit team. Chose the same option,might be incorrect here
 

shefalimr11

New Member
6. Option D is correct but it was a frown i reckon
15. Forgot the answer
18. Same
31 had a hard time selecting btwn security and independent audit team. Chose the same option,might be incorrect here
31 I am pretty sure about the 3rd line of defence - Audit, because i remember a similar question in the mock exam with almost similar options :eek:
 
Out of curiosity, any idea if the blue exam is different than orange paper? or are these reshuffled questions? because I remember my volatility smile was a smile and not a fr0wn - in fact I don't remember having a frown as an option!
 

Coolkool

New Member
Out of curiosity, any idea if the blue exam is different than orange paper? or are these reshuffled questions? because I remember my volatility smile was a smile and not a fr0wn - in fact I don't remember having a frown as an option!

I have blue one. I remembered answer b was a smile and answer d was a frown. I also struggled between smile and frown. I picked frown as my final answer ( I don't remember the reason why I picked this) You guys all think frown was incorrect?
 

Dipanjan

New Member
I have blue one. I remembered answer b was a smile and answer d was a frown. I also struggled between smile and frown. I picked frown as my final answer ( I don't remember the reason why I picked this) You guys all think frown was incorrect?
Frown IMO, as there will be bimodal price distribution based on success or failure - 100 to 150 or 50 lets say
 

sergiogh7

New Member
I have blue one. I remembered answer b was a smile and answer d was a frown. I also struggled between smile and frown. I picked frown as my final answer ( I don't remember the reason why I picked this) You guys all think frown was incorrect?

Price jumps = frown

Do you remember the questions about:
OIS and LIBOR--------- 5% was the answer?
Credit VaR of a portfolio of CDS -------
 
The exam was lengthy! :eek: I feel that practice exam was more straightforward than the real exam. Wish I could say i managed to answer all, but i made some educated guesses and some random guesses too. What I noticed as well is that its not about knowing the formulae and solving the questions numerically, but it was about thinking deeper and seeing them in different perspectives.... which is time consuming. BT was spot on in terms of numerical questions but there are just infinite ways to ask qualitative questions and that's where BT lacked. In terms of questions, there was one that almost got me about shorting CDS and calculating the 95% CVaR. And there was one about LVar too whether to use endogenous approach or exogenous. Can anyone else remember what they answered for these two qs?
 

sergiogh7

New Member
The exam was lengthy! :eek: I feel that practice exam was more straightforward than the real exam. Wish I could say i managed to answer all, but i made some educated guesses and some random guesses too. What I noticed as well is that its not about knowing the formulae and solving the questions numerically, but it was about thinking deeper and seeing them in different perspectives.... which is time consuming. BT was spot on in terms of numerical questions but there are just infinite ways to ask qualitative questions and that's where BT lacked. In terms of questions, there was one that almost got me about shorting CDS and calculating the 95% CVaR. And there was one about LVar too whether to use endogenous approach or exogenous. Can anyone else remember what they answered for these two qs?

I think that it was exogenous approach and the formula that I applied was:

LVaR=VaR + 0,5*V(mean (s) + stddev(s)*z)
 

sergiogh7

New Member
Also, there was a question to calculate the hazard rate given a PD. It was so simple like use the following formula?

PD=1-e^(-hazard rate * T)

I obtained a result like 8% or something like this
 

snandal99

New Member
i think it said 5 m was the threshold, 2 m was the minimum transfer amount. so because it went to -10, you would have to pay 5 m as collateral? i hope i m right :eek:
well..for the same ques.. if exposure us -10, don't we need +5 (min threshold)+2+2 (min transfer) = 9 to cover the exposure of -10 (assume for correct cpty direction).
this is not an option though, so I thought since its a collateral transfer for wednesday so should be based on mtm of tuesday which makes 0 & 2 as answer..
:)
 

snandal99

New Member
Lil on Background : Just relied on Schweser and BT theory material (lack of time so could not practice much). And my observation is :

- Questions are lengthy, with lot of unwanted information. Many time I relied on some keywords in between lengthy text (like “to hedge CR and MR both” – TRS instrument, “trade qty doesn’t impact the price” – LC exogenous approach etc
- the ques need lot of visualisations, which is not certainly about putting direct formulas into work. I wonder why they give so much unwanted info.
- I assumed securitisation, Basel regulations to be impt topics. But very less ques from these topics. Disappointed.
- the strategy of skipping text from case studies ques and directly attempting ques, could have been a good one, but I spent time reading them n just getting confused only.
- The exam is not lengthy or calculation intensive (like part 1), so managed to get to the end (definitely by skipping some ques in between, but more time on certain ques)

I think I will be betting on my luck to get through, as definitely not sure outright. ;)
 

Martin B

New Member
Actually I was expecting a lot of more lengthy and "novel" type questions. The rest of them was actually comparable to the practice exam.

I also dont remember any questions on securitization. Given the number of assigned readings about this topic I was expecting at least two questions...
 

Navneet02

New Member
The test was, I presume, if a candidate knows (1+r/2) as a discounting factor and two times discounting
I believe even if you don’t divide Rate by 2 and multiply by entire interest by 2, normal 2 times bionomial model calculation would arrive you to the answer as options were pretty far away.
 

Dipanjan

New Member
Actually I was expecting a lot of more lengthy and "novel" type questions. The rest of them was actually comparable to the practice exam.

I also dont remember any questions on securitization. Given the number of assigned readings about this topic I was expecting at least two questions...

There was a qs on TRS if I reckon right
And in the Mock GARP asked only one qs as well
 
well..for the same ques.. if exposure us -10, don't we need +5 (min threshold)+2+2 (min transfer) = 9 to cover the exposure of -10 (assume for correct cpty direction).
this is not an option though, so I thought since its a collateral transfer for wednesday so should be based on mtm of tuesday which makes 0 & 2 as answer..
:)

The only way I see 0 and 2 is the answer is if negative mtm means I owe money to the counterparty

As for 5 and 7
5 is because that's the difference between the exposure and threshold, so you will seek 5 additional collateral. But you already have 2 initial margin which is also a form of cllateral. This makes the total collateral 5+2

The minimum transfer of 2k will only come into play if the new collateral required is lower than minimum transfer e.g. exposure is 6
 
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