The capital that bank must hold in BIA for operational risk is equal to the

average of a fixed percentage of positive annual gross income over the

previous two years?
Select one
A True
B False
Definition of operational risk as per Basel Committee is "The risk of direct or
indirect losses resulting from inadequate or failed internal processes people
and systems or from external events "?
Select one:
a. True
b. False
Under the advanced measurement approach to calculate operational risk,
the internal models are allowed only for banks that?
Select one
A Satisfy qualitative criteria such as effective risk management
B Both a &b
C Possess sound measurement and validation of operational risk models
D Only a
Liquidity Cycle measures?
Select one
a. mismatch of assets and liabilities
b The number of days it takes to convert net working capital into cash
c The average investments on a yearly basis
d The seasonality in cash flows during a year
Financial leverage and solvency ratios provide?
Select one
a Similar signals about the long term liquidity risk
b Different signals about the long term liquidity risk
c None of the options
d Different signals about short term liquidity risk
For financial ratios to be more useful in measuring the short and long term
liquidity risk?
Select one
a It is necessary to compare each ratio with WACC
b It is necessary to measure current ratio
c It Is necessary to compare with a firm's growth rate
d. It is necessary to compare with financial ratios from comparable
companies

When the strike price of an option equals the price of the underlying, what
value is at its maximum?
Select one:
a. Intrinsic Value
b. All
c. Price of the option
d. lime value
The measure of the sensitivity of option price to the changes in the interest
rate is represented by?
Select one:
a. Theta
b. Gamma
c. Delta
d. Rho
With increase in Spot Price, the value of call price and put price _
Select one:
a. Increases, Decreases
b. Decreases, Increases
c. Remains Constant, Increases
d. Decreases, Remains Constant
It is the amount of capital that banks and insurance companies set aside as a
buffer against potential losses from their business activities?
Select one
a Provision
b Economic Capital
c. None of them
d Minimum Capital Requirement
It is the amount of capital that banks and insurance companies set aside as a
buffer against potential losses from their business activities?
Select one:
a Economic capital
b Minimum Capital Requirement
c Provision
d. None

The concept of reference asset Is associated with which credit derivative?

Select one.

a. Credit Linked Notes (CLN)

b Total Rate of Return Swap
e Credit Default Swap
d None of them
The Sharpe Index measures?
Select one.
a The ratio of return to risk
b Both the ratio of return to risk and Comparison of portfolios in terms of
efficiency
c. The ratio of risk to return
d Comparison of portfolios in terms of efficiency
If the historical loss value were high then the firm would set limits on the
amount of capital that can be invested
Select one
a high
b low
c optimum
d None of them
Capital set aside to cover unexpected losses is?
Select one
a. Minimum Capital Requirement
b None of the them
c Provisioning
d. Economic Capital
Which of the following statements is false?
Select one:
a. None of the above
b Strangles are particularly useful if big price fluctuation are expected but
the direction of change is not assured.
c. In strangles, options are bought or sold at different strike prices
d. Strangles are cheaper alternatives than straddles

----- of outstanding options (those that are not settled yet) is the probability
that they will be in the money?
Select one

a The intrinsic value

b None of the above
c Future Market Value
d lime value
A trader who buys the call and put option is said to be __ on the stradde
Select one
a Short
b Long
c. Down
d. Fall
What is net stable funding ratio (NSFR) ?
Select one
a It is require banks to have sufficient high-quality liquid assets to withstand
a 30-day.
b It is a longer-term structural ratio designed to address liquidity mismatches
c It is for Sound Liquidity Risk Management
d None of the options
Which is a method for calculating OAS?
Select one
a Monte Carlo Simulations & Binomial Pricing Method
b Binomial Pricing Method
c Neither
d Monte Carlo Simulations
When LCR and Net stable funding ratio (NSFR) will be introduced in India
according to Basel III ?
Select one:
a 2014 2015
b 2015. 2016
c 2012. 2014
d 2015. 2018
A Call means that the option will exist only when the price of the underlying
falls and a certain barrier price is touched.
Select one.
a Down and In
b Down and Out
c Up and Out
d Up and In
When a bank tries to make a wide variety of loans to various kinds of
borrowers it is hoping to reap the benefit of?
Select one:

a. reduced operational risk

b. more firm-specific risk exposure
c guaranteed income
d. diversification
In .. .. .. .. .. .. .. option. the investor holds both a call and a put option at the
same strike price and maturity?
Select one:
a Bull Spread
b Butterfly Spread
c Straddle Spread
d Bear Spread
The risk that arises due to worsening of credit quality is ?
Select one:
a. Intrinsic risk
b. Credit spread risk
c. Portfolio risk
d Counterparty risk
Which of the following are component of interest rate risk?
Select one:
a. Systematic risk and reinvestment risk
b. call risk and price risk
c. Price risk and default risk x
d. Reinvestment risk and price risk
Derivatives that give the holder an option, the right (but not the obligation)
to buy (or sell) an underlying asset at a future date at a price fixed on the
current date are?
Select one.
a Swaps
b Options
c. forWards
d Futures

Debt securities are often called fixed-Income securities because?

Select one
a they promise either a fixed stream of income or a stream of income
determined by a specific formula.

b. the government fixes the maximum rate that can be paid on bonds
c. the government fixes the maximum rate that can be paid on bonds.
d. they pay a fixed amount at maturity.
In a put swaption
Select one
a Buyer has the right to enter into a swap as a floating rate payer
b. Seller has the right to enter into a swap as a floating rate payer
c Seller has the right to enter into a swap as a fixed rate payer
d Buyer has the right to enter into a swap as a fixed rate payer
These are benchmark short-term interest rates that are widely quoted in the
marketplace?
Select one
a Repo Rate
b Euro rate
c Libor
d. Reverse Repo Rate
With increase in Spot Price the value of call price __ and put price _
Select one
a Decreases Increases
b. Remains Constant, Increases
c Decreases Remains Constant
d Increases Decreases
The capital that bank must hold In BIA for operational risk is equal to the
average of a fixed percentage of positive over the previous three years?
Select one
a None of the options
b Gross National Income
c Gross Domestic Product
d Annual Gross Income
Margins are compulsory on?
Select one:
a. Futures
b. Forwards
c. Swaps
d. Equities
Systematic Risk can be avoided?
Select one:
a. True
b False

According to Principle 3 of Basel II Banks should have a process for assessing

their overall capital adequacy in relation to their risk profile and a strategy
for maintaining their capital levels?
Select one
a False
b True
Which of the following statement is true?
Select one
a A bank will be permitted partial use of the Basic Indicator Approach and
Standardized approach . There is no partial use of AMA
b A minimum criterion is to be met for any partial use of approaches.
c No partial use of measurement.
d. A bank is at will to use the Basic Indicator or Standardized approach for
some parts of its operations and an AMA for others
In a common stock rights offering the subscription price is generally:?
Select one:
a set equal to the current market price of the stock
b. set below the current market price of the stock
c. set above the current market price of the stock
d, set above the current market price of the stock
______ are not considered capital market securities?
Select one
a bonds
b mortgages
c. stocks
d. retail CDs
Which of the following is not a component of Pillar 1 of Basel II?
Select one
a Credit Risk
b. Syndicate Risk
c. Operations Risk
d. Market Risk
................ is a transaction between two parties in which each party agrees to
make a series of payments to the other with at least one set of Payments
determined by the return on a stock or stock index?
Select one
a Equity Swap
b Future
c ForWard
d Option

Which of the following statements is false?

Select one
a Strangles are cheaper alternatives than straddles
b. Strangles are particularly useful if big price fluctuation are expected but
the direction of change is not assured
c. In strangles options are bought or sold at different strike prices.
d. None of the above
A bank funds its assets from a pool of composite liabilities Apart from credit
and operational risks. it faces?
Select one
a Basis risk
b Market risk
c Liquidity risk
d Mismatch risk
What is a loan loss provision?
Select one:
a It is a discount made to future cash flows to reflect expected bad debts.
b, It is a charge against profit before calculating liability for corporate taxes
c. It is a charge against profits for recently reported losses.
d. It is an accounting entry for future expected losses.
An investor who holds bonds has partial ownership in a corporation?
Select one:
a. True
b False
Which of the following is correct?
Select one:
a. Spread + Bench mark yield = Yield of the bond
b. OAS=Bond's yield+ spread due to optionality
c. All
D Spread = OAS - Spread due to optionality
Which factor is not included in Risk Treatment?
Select one:
a. Risk Financing
b. Risk Control mitigation
c. Risk Avoid
d. Risk Identification
A/an ________is an indicator of the uncertainty in the economy and is the
predictor of the economic transition.?
Select one:

a. Downward sloping curve

b. Inverted yield curve
c. Flat curve
d, None of the options.
Which are not traded OTC?
Select one:
a. Swaps
b. Forwards
c. Equity swaps
d. Futures
Operational Risk is the risk associated with a non-conducive environment to
function. _______ talks about minimizing this risk.?
Select one:
a. Basel I
b None of the above
c Basel II
d Basel Ill
A bank will be permitted to use an AMA for some parts of its operations and
the Basic Indicator Approach or Standardized Approach for the balance. This
Select one
a False
b True
which of the following event is not a credit event ?
Select one
a Default on payments
b Downgrading
c Bankruptcy
d Calling back a bond
Pick the odd one out.?
Select one
a. Speculators
b. Hedgers
c. Arbitrageurs
d. Spectator
_____ measures the sensitivity of a portfolio's value to a 1% change in the
yield of a particular maturity?
Select one
a. Modified Duration

b. Key Rate Duration

c Effective Duration
d Macaulay Duration
Factor effecting Credit Spread is?
Select one
a. Volatility
b. Inflation
c. The performance of the competition
d. Interest Rates
At the time of maturity, the option value becomes equal to Time value
Select one:
a. True
b. False
What is not a part of the formula for Macaulay duration?
Select one:
a. C = cash flow
b. T= time to repay
c. t = time to maturity
d. n = number of cash flows
In a strangle both the strike prices are
Select one:
a. in-the-money
b. None of the above
c. at-the-money
d. out-of-money

Which Is not a cost of an equity Index portfolio?

Select one
a Future Spreads
b Rebalance Cost
c. Commissions
d Custody Fees
Portfolios constructed using derivatives are called?
Select one:
a. Synthetic Portfolios
b. None of the above
c. Vanilla portfolios

d Equity Index portfolios

Banks with international presence are required to hold capital equal to _ % of
the risk-weighted assets in basel II ?
Select one
a 12%
b. 8%
c. 15%
d. 10%
A transaction where financial securities are issued against the cash flow
generated from a pool of assets is called?
Select one:
a. Credit Default Swaps
b. Credit Linked Notes
c Total Returns Swaps
d Securitization
Which of the following is not used to find the price of the bond?
Select one
a number of payments
b Principal Payment
c coupon payment
d interest rate. or required yield
An $8,000 coupon bond with a $400 annual coupon payment has a coupon
rate of?
Select one:
a 5%
b 40%
c 8%
d 10%
The inability of an FI to meet the demands of liability holders or asset
claimants is?
Select one
a. economies of scope
b liquidity risk.
c sovereign risk
d economies of scale
Mortgage companies may use interest rate swaps mainly because
Select one
a they have mortgage loans
b they have short-term liabilities and long-term assets
c. they have long-term debt

d. A and B
An interest rate floor in currency swaps sets .
Select one
a. a maximum rate on fixed interest rate payments
b a maximum rate on floating interest rate payments
c a minimum rate on floating interest rate payments
d. None of the above
In order to develop capability to actively manage credit portfolio, banks must
have in place the following Q) they to maintain necessary data on defaults of borrowers rating category
wise
(II) they must have a Credit Rating Model
Select one.
a Only (ii) is required
b None of the options
e Only (i) is required
d Both (i) and (ii) are required
A coupon bond is a bond that ?
Select one
a always sells at par
b does not pay interest on a regular basis but pays a lump sum at maturity
e pays interest on a regular basis (typically every six months)
d can always be converted into a specific number of shares of common stock
in the issuing company

An investor who holds bonds has partial ownership in a corporation.?

Select one:
a. False
b. True
Which of the following cannot be used as hedging tools?
Select one:
a. Spot yield curve
b. Repo transactions
c. Hedge ratio
d. libor rate

Financial markets have the basic function of?

Select one:
a. both (A) and (B) of the above.
b. bringing together people with funds to lend and people who want to
borrow funds.
c. assuring that governments need never resort to printing money.
d. assuring that the swings in the business cycle are less pronounced.
Which is not an advantage of using an interest rate swap?
Select one
a calculating volatility in the market
b obtaining lower cost funding
c hedging interest rate exposure
d obtaining higher yielding investment assets
The Current Yield of a Bond whose annual cash inflow is Rs 82 and the
Market price is Rs 950?
Select one
a 8.54%
b 9.02%
c 8.63%
d 8.06%
Can risk premium and credit spread be compared?
Select one
a True
b False

Swaps do not?
Select one
a Create Synthetic Assets
b Fluctuate interest rates
c. Help hedging
d. Decrease cost of financing
Duration and Convexity are both used extensively in?
Select one
a Risk Management
b. Risk Calculation
c Time management
d Asset liability Management

Factor effecting Credit Spread is?

Select one
a Inflation
b Interest Rates
c. Volatility
d The performance of the competition
Value-weighted Indices are the same as?
Select one:
a. Price-weighted Indices
b. Capitalization Weighted index
c. None of the above
d. Equity index
PERCS was issued by?
Select one:
a JP morgan
b. morgan Stanley
c. Salomon Brothers
d. Merrill lynch
The policy holders of a life insurance company are?
Select one:
a. long a call option
b. Short a call option
c. Short a put option
d. long a put option

Which of the following is not a type of Swaptions ?

Select one:
a. Bermudan Type Swaption
b American Type Swaption
c European Type Swaption
d Asian Type Swaption
Which of the following is a protective options strategy that is implemented
after a long position in a stock has experienced substantial gains?
Select one
a Collar
b Caps
c Swaptions
d Floors

A seller pays the difference between the market rates and the cap rate when
the market rates move above the cap rate to the purchaser
Select one:
a. True
b. False