What does correlation between two variables measure?

• A.Extreme returns of both variables.
• B.Symmetry of a joint distribution of the two variables.
• C.The proportion of variability in one of the variables that is explained by the other.
• D.Association between the two variables and the strength of a possible statistical relationship.

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Which of the following bank events could stress the bank's liquidity position?
I. Obligations to fund assets like mortgages
II. Unusually large depositor withdrawals
III. Counterparty collateral calls
IV. Nonperforming assets

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

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Which one of the four following statements about the Risk Adjusted Return on Capital (RAROC) is correct?
RAROC is the ratio of:

• A.Profitability to the risk of a trading portfolio or bank business unit.
• B.Risk to the profitability of a trading portfolio or a business unit within the bank.
• C.Profitability to the expected return of a trading portfolio or bank business unit.
• D.Value-at-risk to the profitability of a trading portfolio or a business unit.

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Oliver McCarthy owns a portfolio of bonds. Which of the following choices equals the modified duration of
Oliver's portfolio?

• A.Value-weighted average modified duration of the component bonds
• B.Coupon-weighted average modified duration of the component bonds
• C.Minimum of the modified durations of the component bonds
• D.Maximum of the modified durations of component bonds

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