To safeguard its capital and obtain insurance if the borrowers cannot repay their loans, Gamma Bank accepts
financial collateral to manage its credit risk and mitigate the effect of the borrowers' defaults. Gamma Bank
will typically accept all of the following instruments as financial collateral EXCEPT?

• A.Equities and convertible bonds included in a main market index
• B.Commercial debts owed to a company in a form of receivables
• C.Unrated bonds issued and traded on a recognized exchange
• D.Mutual fund shares and similar unit investment vehicles subject to daily quotes

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Which of the following statements represents a methodological difference between variance-covariance and
full revaluation methods?

• A.Variance-covariance approach computes the VAR for each position separately, while the full revaluation
  method computes the VAR on a portfolio basis.
• B.Variance-covariance approach provides computational advantages over the full revaluation approach.
• C.Variance-covariance approach uses only historic data to compute the covariance matrix.
• D.Variance-covariance approach prices positions more accurately than the full revaluation approach.

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Which of the following factors can cause obligors to default at the same time?
I. Obligors may be harmed by exposures to similar risk factors simultaneously.
II. Obligors may exhibit herd behavior.
III. Obligors may be subject to the sampling bias.
IV. Obligors may exhibit speculative bias.

• A.III, IV
• B.I, II
• C.II, III
• D.I

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A risk manager is analyzing a call option on the GBP with a vega of 0.02. When the perceived future volatility
increases by 1%, the call option

• A.Increases in value by 0.02.
• B.Decreases in value by 0.02.
• C.Increases in value by 2.
• D.Decreases in value by 2.

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Which one of the following four statements regarding counterparty credit risk is INCORRECT?

• A.Dynamic collateral provisions often increase counterparty risk considerably.
• B.Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its
  default.
• C.The exposure at default can be negatively correlated to probability of default.
• D.The exposure at default is variable due to fluctuations in swap valuations.

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