Which among the following are shortfalls of the static liquidity ladder model?
I. The static model gives a liquidity estimate only after the bank faces the liquidity problem.
II. The static model can only make projections over a few days.
III. The static model does not incorporate uncertainty in the analysis.

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

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Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration
measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield
curve?

• A.Take positions to increase the duration
• B.Take positions to reduce the duration
• C.Take positions to make the convexity zero
• D.Since the portfolio is duration hedged Sam does not need to take additional positions.

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Which one of the following four statements correctly identifies disadvantages of using the economic capital?

• A.The economic capital models used by banks may be subject to significant model risk.
• B.Since banks are putting their money at risk they have an incentive to increase economic capital.
• C.Economic capital may do not take into consideration the regulatory requirements.
• D.Economic capital estimates the level of expected losses.

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To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a
credit portfolio manager should use the following metric:

• A.Unexpected loss
• B.Expected loss
• C.Factor sensitivity
• D.Credit VaR

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A large multinational bank is concerned that their duration measures may not be accurate since the yield curve
shifts are not parallel. Which of the following statements would be typically observed regarding variability of
interest rates?

• A.Short-term rates are equally variable as long-term rates.
• B.Short-term rates and long-term rates always move in opposite directions.
• C.Short-term rates are less variable than long-term rates.
• D.Short-term rates are more variable than long-term rates.

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