James Johnson has a $1 million long position in ThetaGroup with a VaR of 0.3 million, and $1 million long
position in VolgaCorp with a VaR of 0.4 million. The returns of the two companies have zero correlation.
What is the portfolio VaR?
The risk management department of VegaBank wants to set guidelines on commodity carry trades. Which of
the following strategies should she pursue to achieve a profitable commodity carry?
I. Buy short-term commodity futures and sell longer-dated position when the curve is in contango.
II. Buy short-term commodity futures and sell longer-dated position when the curve is in backwardation.
III. Buy long-term commodity futures and sell shorter-dated positions when the curve is in contango.
IV. Buy long-term commodity futures and sell shorter-dated positions when the curve is in backwardation.
Asset and liability management is typically concerned with all of the following activities:
I. Maintaining the desired liquidity structure of the bank.
II. Managing the factors affecting the structure and composition of a bank's balance sheet.
III. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer
price.
IV. Focusing on the circumstances impacting the stability of income the bank generates over time.
ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use
to finance their own lending. Individually, each of the mortgage companies have an exposure at default (EAD)
of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk
department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were
modeled as independent risks, the actual probability would be underestimated by:
Which one of the following four models is typically used to grade the obligations of small- and medium-size
enterprises?
