Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
Section 1 - Section A
1) Credit Risk Assessment models are __________ methods to determine prospective borrower’s probability of
______________.
A) quantitative.....default
B) qualitative.....success
C) qualitative.....default
D) quantitative.....success
2) Securitization enables financial institutions to ___________ their long term loans and the associated risks to entities
whose ___________ are long term in nature.
A) transfer.....assets
B) sell.....liabilities
C) sell.....assets
D) transfer.....liabilities
3) If on any date, if the spot exchange rate is equal to the strike price, then the option is _________.
A) In the money
B) Money
C) At the money
D) Out of the money
4) As per KMV model, __________ the 'statistical distance', __________ is the probability of default.
A) larger.....lower
B) smaller.....lower
C) larger ….. greater
D) smaller.....greater
Page1of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
5) In a European put option strike price is USD/CCU 72.00 at a premium of CCU 0.38 per USD, what is the spot price at
which the holder is indifferent to whether exercise the options or not.
A) 72.38
B) 72.83
C) 71.62
D) 72.00
6) If the expectation (as per pure expectation theory) is that yields will fall going forward. What happens to the flat yield
curve then?
A) Does not change
B) Shift in parallel
C) Slope upwards
D) Slope downwards
7) ‘Protection Buyer’ in a credit default swap wishes to ____________ the risk associated with an asset (such as a loan)
while ‘Protection Seller’ agrees to ___________ that risk.
A) take-on…..reject
B) shed.....take-on
C) take-on.....shed
D) shed.....reject
8) An independent Central Bank is insulated from ____________ pressures hence more likely to work on ____________
objectives such as price stability, stable exchange rate, etc.
A) political.....short-term
B) economic.....short-term
C) economic.....long-term
D) political.....long-term
Page2of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
9) When a Bank sells a call option to an option buyer, the __________ of the option contract is shown as an
____________________ item in the books of the bank.
A) Value.....on-balance-sheet
B) Value.....off-balance-sheet
C) Premium.....on-balance-sheet
D) Premium.....off-balance-sheet
10) ‘Basis Risk’ refers to risk arising from cost of __________ and yield on __________ being linked to different
___________ rates.
A) liabilities.....assets.....interest
B) liabilities.....assets.....benchmark
C) assets.....liabilities.....interest
D) assets.....liabilities.....benchmark
11) Change in the risk profile of the counterparties during the life of the Interest Rate Swap could __________ the fixed
rate - floating rate advantage and hence put the Interest Swap Structure in __________.
A) facilitate.....order
B) alter.....disarray
C) facilitate.....disarray
D) alter.....order
12) Eliminating liquidity risk requires the financial institution to hold assets that are highly __________, hence potential
__________ in interest income.
A) liquid.....increase
B) liquid.....reduction
C) priced.....increase
D) priced.....reduction
Page3of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
13) If the domestic currency of a country appreciates, the firms in that country that source their components domestically
will _________________.
A) benefit
B) lose
C) be indifferent
D) close down
14) Which of the following is/are true in the context of Translation Exposure:
A) In the process of translating all the line items in the balance sheet of the foreign subsidiaries, there would always
be an imbalance
B) The financial statements of the parent company to be restated in the foreign currency of the country where the
foreign subsidiary is domiciled
C) The financial statements of the foreign subsidiary expressed in a foreign currency are to be stated in the foreign
currency only
D) The financial statements of the foreign subsidiary expressed in a foreign currency are to be restated in the parent
company’s reporting currency
15) Long-term debt in the balance sheet are not translated at the current exchange rate under
_________________________ method of translation.
A) Current Rate
B) Monetary/Non-Monetary
C) Current/Non-Current
D) Temporal
16) ‘Credit risk’ reflects the __________ in the quality of assets of a financial institution and consequent potential
__________ to the financial institution.
A) improvement.....loss
B) deterioration.....gain
C) No change…..gain
D) deterioration.....loss
Page4of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
17) Advanced Measurement Approach to operational risk requires the Bank to define ___________ loss events in every
___________ of the bank.
A) potential.....business
B) definite.....business
C) definite.....transaction
D) potential.....transaction
18) ‘Mark-to-market’ loss on investments in bonds means the current price is _____________ than the price at which the
bonds were purchased.
A) Equal
B) Higher
C) Not related
D) Lower
19) The results of a stress test showed that almost 50% of the large banks were declared to have inadequate __________
to cope with a crisis, although all of those banks met the mandated __________ ______________ requirements.
A) capital.....capital adequacy
B) liquidity.....statutory liquidity
C) liquidity.....capital adequacy
D) capital.....statutory liquidity
20) All open positions in the futures exchange are governed by __________ mechanisms, to eliminate the risk of defaults
(by participants) devolving on the __________.
A) monitoring.....participants
B) margining.....exchange
C) monitoring.....exchange
D) margining.....participants
Page5of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
Section 2 - Section B
21) Credit rating involves a detailed assessment of the following aspects of the securitization portfolio:
[Link] of loans in the securitization portfolio
[Link] of the borrower
[Link] structure of the portfolio
[Link] risk
[Link] of the issuer
Select all that apply.
A) i, ii, iii and iv
B) i, iii, iv and v
C) i, ii, iii and v
D) ii, iii, iv and v
22) In asset securitization, the Special Purpose Vehicle (SPV) performs which of the following functions:
[Link] the receivables
[Link] the securitization portfolio
[Link] the asset backed securities to investors
[Link] in the asset backed securities
Select all that apply.
A) Only iv
B) Only ii
C) Both ii and iii
D) Both i and iv
Page6of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
23) Cash inflows for any financial institution would not include:
[Link] deposits from customers
[Link] of fresh loans
[Link] income from loans
[Link] from sale of bonds
[Link] paid to depositors
Select all that apply
A) Both ii and iv
B) Both iii and iv
C) Both i and iii
D) Both ii and v
24) Central banks have mandated that financial institutions that come out unfavourably in the stress test should do the
following:
[Link] higher dividends
[Link] higher plough-back
[Link] their business plan
[Link] the size of their assets portfolio
Select all that apply
A) Both i and iii
B) Only iii
C) Both ii and iii
D) Only iv
Page7of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
25) Which of the following are applicable to a futures transaction:
[Link] be bought and sold only through an ‘Exchange’
[Link] of Counterparty is known
[Link] is guaranteed by the exchange
[Link] discovery is transparent
Select all that apply
A) i, ii, and iii
B) i, iii and iv
C) ii, iii and iv
D) i, ii and iv
26) Pillar- 1 under Basel II covers which of the following risks:
[Link] risk
[Link] risk
[Link] risk
[Link] risk
[Link] risk
Select all that apply.
A) i, iii and v
B) ii, iii and v
C) ii, iv, and v
D) i, ii and iv
Page8of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
27) __________ variability in the exchange rate between two currencies implies __________ foreign exchange risk.
[Link].....low
[Link].....high
[Link].....high
[Link].....low
Select all that apply.
A) Only iii
B) Both ii and iv
C) Only ii
D) Both ii and iii
28) Operational risk in a financial institution could result from:
[Link] in the institution's information technology platform
[Link] increase in non-performing loans
[Link] attack on the institution's fixed assets
[Link] in fixed assets
[Link] internal processes
Select all that apply.
A) i, ii and iv
B) iii, iv and v
C) i, iii and v
D) i, ii, and iii
Page9of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
29) Investors in a securitization portfolio receive cash flows whenever:
[Link] meet their periodic loan repayment obligations
[Link] pre-pay/pre-close their loans
[Link] agent fulfills the periodic loan repayment obligations
[Link] agent (the Originator) make good the loss by invoking the available credit enhancement
Select all that apply.
A) Both ii and iii
B) Only iii
C) i, ii and iii
D) i, ii and iv
30) In the context of Risk Weighted Assets, rank order the following in ascending order of risk-weight:
A. Unsecured loans given by a bank
B. Cash
C. Mortgage loans
D. Investment in government securities (Treasury Bonds)
E. Investment in corporate bonds issued by AAA rated firms
A) D --> C --> E --> B --> A
B) E --> D --> B --> A --> C
C) B --> D --> C --> E --> A
D) B --> C --> D --> A --> E
Page10of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
31) Net Demand and Time Liabilities (NDTL) would be the sum of:
[Link] Net Inter Bank Liabilities (NIBL)
[Link] Term liabilities
[Link] and Savings Account
[Link] Deposits
[Link] Net Inter Bank Liabilities (NIBL)
Select all that apply.
A) i, ii, and iii
B) ii, iii and iv
C) i, iii and iv
D) i, ii and iv
32) Early warning of likely default could be indicated by which of the following:
[Link] in repayment of loan (principal or interest) by the borrower
[Link] increase in credit turnover in the borrower’s bank account
[Link] decrease in debit turnover in the borrower’s bank account
[Link] financial performance vs financial projections
Select all that apply.
A) i, ii, and iii
B) i, iii and iv
C) i, ii and iv
D) ii, iii and iv
Page11of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
33) Which of the following would be classified as risk sensitive assets or as risk sensitive liabilities in the balance sheet
of a financial institution?
[Link] mortgages
[Link] in bonds
[Link]
[Link] loans
[Link]-balance sheet asset
Select all that apply.
A) i, iii and iv
B) i, ii, and iii
C) ii, iii and iv
D) i, ii and iv
34) The major manifestations of Subprime mortgages were:
[Link] loans given to people who were creditworthy
[Link] started to lend willy-nilly as they became very flagrant and adventurous
[Link] had a perverse incentive to give as many housing loans as they wanted to because they would then be able to
sell it as Mortgage backed securities in the financial markets
[Link] were given to customers who would otherwise not even be eligible for a loan
Select all that apply.
A) Both ii and iii
B) i, ii, iii and iv
C) i, ii and iii
D) ii, iii and iv
Page12of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
35) To hedge against a loan of CCU 100 million that the firm wishes to take three months from now, its CFO is like to
use the futures market. Place the following actions in the correct sequence in order to help him hedge the risk:
a)Borrow CCU 100 million in the spot market three months from now;
b)Sell CCU 100 million in the futures market now;
c)Buy CCU 100 million in the futures market three months from now.
A) a --> b --> c
B) b --> a --> c
C) a --> c --> b
D) c --> b --> a
Page13of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
Section 3 - Section C
36) A US firm has exported goods to a Utopian importer worth CCU 100,000 today for which the payment is due 90 days
hence.
Based on the rates prevailing today:
• CCU/USD spot rate: 0.5750
• CCU/USD 90 day Forward Rate: 0.5720
• CCU 90-day interest rate 5.70% per annum
• USD 90-day interest rate: 3.60% per annum
How much USD cash flow can the US firm realize today using the money market hedge?
A) 57589
B) 56692
C) 57208
D) 56976
37) A Bond with a face value of CCU 100 is currently trading at CCU 103, coupon rate 8% to be paid annually. The bond
has a yield to maturity of 7% p.a. and has three more years coupon payments to maturity. What is the duration of the
bond?
A) 2.631
B) 2.887
C) 2.776
D) Need more information
Page14of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
38) A Bank has the following table of credit score parameters:
Below information belongs to a customer:
• Length of service in present job: 11 years
• Age: 38 years
• Has only a savings account with the Bank
• Holds two credit cards
• Graduate from a recognized University
• Currently living in a rented home
• Current FICO score : 650
• Current Annual gross income: CCU 575,000
• Current DSR: 30%
What would be the computed credit score for this customer based on the above information?
A) 145
B) 215
C) 195
D) 180
Page15of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
39) The average return on a Portfolio of loan is 22% and the standard deviation is 35%. There is another loan that gives
a return of 28% with a standard deviation of 42%. If the correlation coefficient is 0.27 and equal weightage on the new
portfolio, calculate the return and risk for the ‘New Portfolio’.
A) Return=25 ; Risk=29.17
B) Return=26 ; Risk=31.28
C) Return=26 ; Risk=29.77
D) Return=25 ; Risk=30.75
40) Please go through the summarized balance sheet of a Bank given below and answer the questions that follow:
Compute the Capital Adequacy Ratio based on the above information.
A) 11.15%
B) 12.82%
C) 12.14%
D) 11.67%
Page16of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
41) Data for the last two years interest rate for a 15 day (fortnight) deposit is:
(a) Mean value of 6%
(b) Standard deviation of 0.60%
(c) 26 fortnights in a year
Estimate the likely interest rate range (maximum and minimum) for a 15 day deposit commencing the coming fortnight
at 95% (two sigma) confidence level.
A) 6.235 - 5.765
B) 6.142 - 5.553
C) 6.432 - 6.292
D) 6.325 - 5.597
42) Based on the balance sheet data below for the Bank of Utopia, analyze the interest rate risk pertaining to assets and
liabilities whose maturity is one year or less:
The Treasurer wishes to evaluate the impact on the Bank’s net interest income, should interest rate be reduced by
0.75%. Based on past data, the Treasurer believes that:
• At least 35% of the fixed rate, home mortgages will be ‘pre-closed’ when the interest rate falls by 0.75%
• 25% of the Current and Savings Account (transaction accounts) are also rate sensitive
Page17of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
Estimate the impact on the bank’s net interest income, based on the above information.
A) Increase by 1706250
B) Reduce by 236250
C) Increase by 2362500
D) Reduce by 1706250
Page18of19
Set Id : 60913_8 MEA SWAYAM - Banking and Financial Markets A Risk
Management Perspective
Answer Keys
Question Paper No: 60913_8
1 A 22 C
2 B 23 D
3 C 24 C
4 D 25 B
5 D 26 B
6 D 27 B
7 B 28 C
8 D 29 D
9 B 30 C
10 B 31 C
11 B 32 B
12 B 33 D
13 B 34 D
14 D 35 B
15 C 36 B
16 D 37 C
17 A 38 C
18 A 39 D
19 A 40 C
20 B 41 A
21 B 42 A
Page19of19