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1. Which of the following should be included when calculating the Gross Income indicator used to calculate operational risk capital under the basic indicator and standardized approaches underBasel II?
A) Insurance income
B) Operating expenses
C) Net non-interest income
D) Fees paid to outsourcing service proviers
2. Economic capital under the Earnings Volatility approach is calculated as:
A) Expected earnings/Required rate of return for the firm
B) [Expected earningsless Earnings under the worst case scenario at a given confidence level]/Required rate of return for the firm
C) Expected earnings/Specific risk premium for the firm
D) Earnings under the worst case scenario at a given confidence level/Required rate of return for the firm
3. Which of the following is not a risk faced by a bank from holding a portfolio of residential mortgages?
A) The risk that mortgage interest rates will rise in the future
B) The risk that CDSspreads on the bank's debt will rise making funding more expensive
C) The risk that the homeowners will not be able to pay their mortgage when they are due
D) The risk that the homeowners will pay the mortgage off before they are due
4. Which of the following contributed to the systemic failure during the credit crisis that began in 2007?
A) Inadequate attentionpaid to liquidity risk
B) Moral hazard from the strategy of 'originate and distribute'
C) Stress tests that did not stress enough
D) All of the above
5. Random recovery rates in respectof credit risk can be modeled using:
A) the binomial distribution
B) the normal distribution
C) the omega distribution
D) the beta distribution
Solutions:
Question # 1 Answer: C | Question # 2 Answer: B | Question # 3 Answer: B | Question # 4 Answer: D | Question # 5 Answer: D |
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