Which one of the following four alternatives correctly identifies the purpose of a clearinghouse in trading
activities?

• A.Reduction of counterparty risk and liquidity risk
• B.Reduction of basis risk and mark-to-market risk
• C.Reduction of market risk and credit risk
• D.Reduction of operational risk and credit risk

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In its VaR calculations, JPMorgan Chase uses an expected tail-loss methodology which approximates losses at
the 99% confidence level. This methodology consists of two subsequent steps to estimate the VaR. Which of
the following explains this two-step methodology?

• A.After VaR is computed at the 97% confidence level, the expected tail loss in excess of that confidence
  level is determined, which is then compared with the VaR estimate at the 99% confidence level.
• B.After VaR is computed at the 1% confidence level, the expected tail loss in excess of that confidence
  level is determined, which and is then compared with the VaR estimate at the 98% confidence level.
• C.After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence
  level is determined, which is then compared with the VaR estimate at the 98% confidence level.
• D.After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence
  level is determined, which is then compared with the VaR estimate at the 99% confidence level.

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

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Which one of the following four statements represents a possible disadvantage of using total return swap to
manage equity portfolio risks?

• A.The total return receiver needs to incur the transaction costs of establishing an equity position.
• B.The total return receiver does not have any voting rights.
• C.Similar to the formal portfolio rebalancing strategy, the total return receiver needs to modify the size of
  the trading position.
• D.Similar to an equity forward position, the total return receiver does not get paid the dividend.

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

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