Beta Insurance Company is only allowed to invest in investment grade bonds. To maximize the interest
income, Beta Insurance Company should invest in bonds with which of the following ratings?

• A.B
• B.A
• C.AAA
• D.AA

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Bank G has a 1-year VaR of USD 20 million at 99% confidence level while bank H has a 1-year VaR of USD
10 million at the same confidence level. Which bank is in a more risky position as measured by VaR?

• A.Both banks are equally risky since the measurements are with the same confidence level.
• B.Since the confidence levels are the same we cannot make any conclusions.
• C.Bank G is taking twice the risk of bank H as measured by VaR.
• D.Bank H is taking twice the risk of bank G as measured by VaR.

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Foreign exchange rates are determined by various factors. Considering the drivers of exchange rates, which
one of the following changes would most likely strengthen the value of the USD against other foreign
currencies?

• A.The global demand for US products decreases
• B.The economic performance in the US weakens
• C.The expected US inflation rate increases
• D.The US current account surplus increases

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According to Basel II what constitutes Tier 3 capital?

• A.Subordinated debt issues that pay interest.
• B.Debt capital that can only be used to support market risk in the trading book of the bank.
• C.Hybrid debt capital instruments that are similar to equity.
• D.Preference shares that confer on issuers the right to defer payment of a fixed dividend.

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Which one of the following four mathematical option pricing models is used most widely for pricing European
options?

• A.The Black model
• B.The Black-Scholes model
• C.The Heston model
• D.The Garman-Kohlhagen model

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