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

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On January 1, 2010 the TED (treasury-euro dollar) spread was 0.4%, and on January 31, 2010 the TED spread
is 0.9%. As a risk manager, how would you interpret this change?

• A.Increase in credit risk on T-bills.
• B.Increase in interest rates on both interbank loans and T-bills.
• C.The decrease in the TED spread indicates a decrease in credit risk on interbank loans.
• D.The decrease in the TED spread indicates an increase in credit risk on interbank loans.

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Bank Sigma takes a long position in the oil futures market that requires a 2% margin, i.e., the bank has to
deposit 2% of the value of the contract with the broker. The futures contracts were priced at $50 per barrel
(bbl) at inception, and rose by $5 to $55. The VaR on the position is estimated to be $10. What is the return on
this transaction on a risk adjusted basis?

• A.500%
• B.50%
• C.20%
• D.10%

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Which one of the following market risk measures evaluates the bank's earnings sensitivity?

• A.Cash flow stress testing
• B.Earnings-at-risk stress testing
• C.Value-at-risk back testing
• D.Large exposure risk identification

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Which one of the following four statements about the "market-maker" trading strategy is INCORRECT?

• A.A market maker can benefit from the market information she gets from the trades she is asked to
  execute.
• B.This risk in this strategy is that traders have to take positions that may quickly incur a loss.
• C.This strategy is independent of market liquidity and number of other market makers.
• D.A market maker that attracts buy and sell orders can make a profit from the spread quoted between the
  buy and sell price.

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