Which type of risk does a bank incur on loans that are in the "pipeline", i.e loans that are in the process of
origination but not yet originated?

• A.The bank does not incur any risk since the loan is not yet originated
• B.Interest rate risk and credit risk
• C.Credit Risk only
• D.Interest rate risk only

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How could a bank's hedging activities with futures contracts expose it to liquidity risk?

• A.Prices may move such that a loss results on the hedge.
• B.The futures hedge may not work due to the widening of basis which could result in a loss for the bank.
• C.The bank could get exposed to liquidity risk since futures trade on an exchange.
• D.Since futures require margins which are settled every day, the bank could find itself scrambling for
  funds.

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A risk manager has a long forward position of USD 1 million but the option portfolio decreases JPY 0.50 for
every JPY 1 increase in his forward position. At first approximation, what is the overall result of the options
positions?

• A.The options positions hedge the forward position by 25%.
• B.The option positions hedge the forward position by 75%.
• C.The option positions hedge the forward position by 100%.
• D.The option positions hedge the forward position by 50%.

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Altman's Z-score incorporates all the following variables that are predictive of bankruptcy EXCEPT:

• A.Return on equity
• B.Return on total assets
• C.Sales to total assets
• D.Equity to debt

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To estimate the required risk-adjusted rate of return on a highly volatile energy stock, a risk associate
compiled the following statistics:
Risk-free rate = 5%
Beta = 2.5
Market Risk = 8%
Using the Capital Asset Pricing Model, she estimates the rate of return to be equal:

• A.40%
• B.15%
• C.10%
• D.25%

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