2020年FRM练习考试第二部分：水平测试题

2020

FRM

®

PRE-STUDY

PracticeExamPartII

Updated01/21/20

FRMPre-StudyPracticeExamPartII

TableofContents

Introductionto2020FRMPartIIPre-StudyPracticeExam3

2020FRMPartIIPre-StudyPracticeExam–StatisticalReferenceTable4

2020FRMPartIIPre-StudyPracticeExam–SpecialInstructionsandDefinitions5

2020FRMPartIIPre-StudyPracticeExam–CandidateAnswerSheet6

2020FRMPartIIPre-StudyPracticeExam–Questions7

2020FRMPartIIPre-StudyPracticeExam–AnswerKey16

2020FRMPartIIPre-StudyPracticeExam–Answers&Explanations17

2

FRMPre-StudyPracticeExamPartII

Introduction

TheFRMExamisapractice-orientedexamination.Itsquestionsarederivedfromacombinationof

theory,assetforthinthecorereadings,and“real-world”workexperience.Candidatesareexpected

tounderstandriskmanagementconceptsandapproachesandhowtheywouldapplytoarisk

manager’sday-to-dayactivities.

TheFRMExamisalsoacomprehensiveexamination,testingariskprofessionalonanumberofrisk

managementconceptsandapproaches.Itisveryrarethatariskmanagerwillbefacedwithanissuethat

canimmediatelybeslottedintoonecategory.Intherealworld,ariskmanagermustbeabletoidentify

anynumberofrisk-relatedissuesandbeabletodealwiththemeffectively.

The2020FRMPre-StudyPartIandPartIIPracticeExamshavebeendevelopedtoaidcandidatesintheir

preparationfortheFRMExaminMayandNovember2020.ThesePracticeExamsarebasedonasample

ofquestionsfrompriorFRMExamsandaresuggestiveofthequestionsthatwillbeonthe2020FRM

Exam.

The2020FRMPre-StudyPartIPracticeExamcontains25multiple-choicequestionsandthe2020

FRMPre-StudyPartIIPracticeExamcontains20multiple-choicequestions.

The2020FRMPracticeExamsdonotnecessarilycoveralltopicstobetestedinthe2020FRMExamas

anytestsamplesfromtheuniverseoftestablepossibleknowledgepoints.However,thequestions

selectedforinclusioninthePracticeExamswerechosentobebroadlyreflectiveofthematerial

assignedfor2020aswellastorepresentthestyleofquestionthattheFRMCommitteeconsiders

appropriatebasedonassignedmaterial.

Foracompletelistofcurrenttopics,corereadings,andkeylearningobjectives,candidatesshould

refertothe2020FRMExamStudyGuideand2020FRMLearningObjectives.

CorereadingswereselectedbytheFRMCommitteetoassistcandidatesintheirreviewofthesubjects

coveredbytheExam.QuestionsfortheFRMExamarederivedfromthecorereadings.Itisstrongly

suggestedthatcandidatesstudythesereadingsindepthpriortosittingfortheExam.

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FRMPre-StudyPracticeExamPartII

4

FRMPre-StudyPracticeExamPartII

SpecialInstructionsandDefinitions

1.

2.

3.

4.

5.

6.

7.

8.

9.

Unlessotherwiseindicated,interestratesareassumedtobecontinuouslycompounded.

Unlessotherwiseindicated,optioncontractsareassumedtobeononeunitoftheunderlyingasset.

bp(s)=basispoint(s)

CAPM=capitalassetpricingmodel

CCP=centralcounterpartyorcentralclearingcounterparty

CDO=collateralizeddebtobligation(s)

CDS=creditdefaultswap(s)

CEO,CFO,CIO,andCROare:chiefexecutive,financial,investment,andriskofficers,respectively

CVA=creditvalueadjustment

10.ERM=enterpriseriskmanagement

11.ES=expectedshortfall

12.EWMA=exponentiallyweightedmovingaverage

13.GARCH=generalizedauto-regressiveconditionalheteroskedasticity

14.LIBOR=Londoninterbankofferedrate

15.MBS=mortgage-backed-security(securities)

16.OIS=overnightindexedswap

17.OTC=over-the-counter

18.RAROC=risk-adjustedreturnoncapital

19.VaR=value-at-risk

20.Thefollowingacronymsareusedforselectedcurrencies:

AcronymCurrency

Acronym

GBP

Currency

AUD

BRL

Australiandollar

Britishpoundsterling

Indianrupee

Japaneseyen

Singaporedollar

USdollar

Brazilianreal

Canadiandollar

Chineseyuan

euro

INR

CAD

CNY

EUR

JPY

SGD

USD

5

FRMPre-StudyPracticeExamPartII

2020FRMPartIIPre-StudyPracticeExam–CandidateAnswerSheet

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

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FRMPre-StudyPracticeExamPartII

1.Aduediligencespecialistatanassetmanagementfirmisevaluatingtheriskmanagementprocessofahedge

fundinwhichthefirmisconsideringmakinganinvestment.Whichofthefollowingstatementsbestdescribes

appropriatecriteriathespecialistshoulduseforsuchanevaluation?

A.Thefirmshouldensurethatthehedgefundallowsdirect,in-personcommunicationswiththefund’s

seniormanagementorkeydecisionmakersatthefund.

B.Today'sbestpracticesinriskmanagementrequirethatafundemployindependentriskserviceproviders

andthattheseserviceprovidersplayimportantrolesinrisk-relateddecisions.

C.Whenconsideringinvestinginaleveragedfund,thecompanyshouldnotinvestinthefundunlessthe

fund’sgrossleverageratioisabovethepeergroupaverage.

D.Itiscrucialtoassessthefund'svaluationpolicy,andingeneralifmorethan10%ofassetpricesarebased

onmodelpricesorbrokerquotes,thespecialistshouldrecommendagainstinvestmentinthefund.

2.Abankbuysabondonitscouponpaymentdate.Threemonthslater,inordertogenerateimmediateliquidity,

thebankdecidestorepothebond.Detailsofthebondandrepotransactionareasfollows:

Notional(USD)

100,000

6%

Coupon(semi-annual)

Currentbondprice

Repohaircut

97

10%

4%

Repointerest

Iftherepocontractexpires6monthsfromnow,whatisthebank’sexpectedcashoutflowattheendofthe

repotransaction?

A.USD89,046

B.USD90,423

C.USD93,177

D.USD100,470

3.Amarketriskmanagerseekstocalculatethepriceofa2-yearzero-couponbond.The1-yearinterestrate

todayis8.0%.Thereisa50%probabilitythatthe1-yearinterestratewillbe10.0%in1yearanda50%

probabilitythatitwillbe6.0%in1year.Assumingtheriskpremiumofdurationriskis40bpseachyear,and

thebond’sfacevalueisEUR1,000,whichofthefollowingshouldbethepriceofthezero-couponbond?

A.EUR822.98

B.EUR854.47

C.EUR905.30

D.EUR921.66

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FRMPre-StudyPracticeExamPartII

4.TheCEOofalargebankhasreportedthatthebank’stoolsandprocessesformanagingoperationalriskare

consistentwithBaselIIandBaselIIIguidelinesforoperationalriskgovernance.Whichofthefollowingactions

andprinciplesofthebankiscorrect?

A.Thebankusesoutsourcingtomitigatetheoperationalriskthatshouldbeaddressedbythemanagement.

B.Asthehighest-levelexecutiveofseniormanagement,theCEOapprovesthebank’sriskappetiteand

tolerancestatementforoperationalrisk.

C.Theoperationalriskmanagementframeworkestablishedbythebankissubjecttoindependentreview.

D.Departmentmanagersmonitortheirdepartments’operationalriskprofilesandlossesandenforce

compliancewithcompanyriskpolicies.

5.Amid-sizedinvestmentbankconductsseveraltrades.Aspartofitsriskcontrol,ithasenteredintonetting

agreementson10equitytradepositionswithanaveragecorrelationof0.27.Thefirmbelievesthatitcan

improveuponthediversificationbenefitofnettingbyrevisingthecurrentagreement.Assumingvaluesof

futuretradepositionsarenormallydistributedwithzeromeanandequalvariance,whichofthefollowing

tradecombinationswouldincreasethefirm’sexpectednettingbenefitthemostfromthecurrentlevel?

TradeCombination

NumberofPositions

AverageCorrelation

L

M

P

5

8

12

14

0.29

0.20

-0.05

-0.04

Q

A.TradecombinationL

B.TradecombinationM

C.TradecombinationP

D.TradecombinationQ

8

FRMPre-StudyPracticeExamPartII

6.ApackagingmaterialsmanufacturerisconsideringaprojectthathasanestimatedRAROCof12%.Suppose

thattherisk-freerateis4%peryear,theexpectedmarketrateofreturnis10%peryear,andthecompany's

equitybetais1.6.UsingthecriterionofadjustedRAROCfortheriskofreturns,thecompanyshould:

A.RejecttheprojectbecausetheadjustedRAROCishigherthanthemarketexpectedexcessreturn.

B.AccepttheprojectbecausetheadjustedRAROCishigherthanthemarketexpectedexcessreturn.

C.RejecttheprojectbecausetheadjustedRAROCislowerthantherisk-freerate.

D.AccepttheprojectbecausetheadjustedRAROCislowerthantherisk-freerate.

7.Acreditmanagerwhoiswellversedinlessonslearnedfromthe2007–2009subprimemortgagecrisisintheUS

isoverseeingthestructuredcreditbookofabankinordertoidentifypotentialproblemsofinformationflow

(frictions)amongthepartiesinvolvedinthesecuritizationprocess.Whichofthefollowingisacorrect

combinationofapotentialfrictioninthesecuritizationprocessandanappropriatemechanismtomitigatethat

friction?

A.Frictionbetweentheassetmanagerandtheinvestor:Principal-Agentproblem.Thisproblemcanbe

mitigatedbyestablishinginvestmentmandatesandevaluatingtheassetmanager’sperformance.

B.Frictionbetweenthearrangerandtheoriginator:Modelerrorproblem.Thisproblemcanbemitigatedby

thearrangerprovidingacreditenhancementtothesecuritizedproductswithitsownfunding.

C.Frictionbetweentheinvestorandcreditratingagencies:Moralhazardproblem.Thisproblemcanbe

mitigatedbyrequiringcreditratingagenciestobepaidbyoriginatorsandnotbyinvestorsfortheirrating

services.

D.Frictionbetweentheservicerandthemortgagor:Adverseselectionproblem.Thisproblemcanbe

mitigatedbythemortgagorapplyingduediligenceontheservicer.

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FRMPre-StudyPracticeExamPartII

8.Largedealerbankshaveoftenfinancedsignificantfractionsoftheirassetsusingshort-term(overnight)

repurchaseagreementsinwhichcreditorsholdbanksecuritiesascollateralagainstdefaultlosses.Thetable

belowshowsthequarter-endfinancingoffourA-ratedbroker-dealerbanks(allvaluesareinUSDbillion):

BankP

BankQ

BankR

BankS

FinancialInstrumentsOwned

Pledgedascollateral

Notpledged

339

139

200

656

258

398

835

209

626

750

472

278

Intheeventthatrepocreditorsbecomeequallynervousabouteachbank’ssolvency,whichbankismost

vulnerabletoaliquiditycrisis?

A.BankP

B.BankQ

C.BankR

D.BankS

9.Agoldminingcompanyhasoutstandingoptionlesszero-couponbondswithafacevalueofCAD115million

andacurrentmarketvalueofCAD100million.Thecompany’sbondsmaturein2years.Treasurynoteswitha

2-yearmaturityhaveacontinuouslycompoundedyieldof4.8%peryear.Whatistheaveragecreditspreadof

thecompany’sbonds?

A.1.37%

B.2.07%

C.2.19%

D.3.43%

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FRMPre-StudyPracticeExamPartII

10.Ahedgefundriskmanagerplanstoadoptaninterestratetermstructuremodelwhoseriskneutraldynamics

displaymeanreversionandatime-varyingdrift.ThemanagerisconsideringtheVasicekmodelasoneofthe

candidates.WhichofthefollowingbestdescribesafeatureoftheVasicekmodel?

A.Shockstoshort-termratesgiverisetoadownward-slopingtermstructureofvolatilityandthemodel

allowsforatimedependentdrift.

B.Theshort-termratestendtowardalongrunequilibriumvalueandtheexpectedvalueofthechangein

short-termratesisalwayszeroovertime.

C.Shockstoshort-termratesaffectallratesequally,givingrisetoparallelshifts.

D.ThereisnomeanreversionandtheriskpremiumcorrespondstoaconstantdriftintheVasicekmodel.

11.Ariskmanagerisevaluatingtherisksofaportfolioofstocks.Currently,theportfolioisvaluedatCAD248

millionandcontainsCAD15millioninstockT.Theannualizedstandarddeviationsofreturnsoftheoverall

portfolioandofstockTare16%and13%,respectively.Thecorrelationofreturnsbetweentheportfolioand

stockTis0.45.Assumingtheriskanalystusesa1-year95%VaRandthereturnsarenormallydistributed,what

isthecomponentVaRofstockT?

A.CAD0.096million

B.CAD1.444million

C.CAD2.041million

D.CAD3.948million

12.Atreasurerataregionalbankisassessingthebank’sliquidityposition.Thetreasurerestimatesthatthe

followingcashinflowsandoutflowswilloccurinthenextweek:

CashFlows

Amount(millionsofUSD)

Depositwithdrawals

50

80

Depositinflows

Scheduledloanrepayments

Acceptableloanrequests

Borrowingsfrommoneymarket

Operatingexpenses

120

100

80

70

Stockholderdividendpayments

Repaymentofbankborrowings

40

60

Whichofthefollowingisthecorrectamount,attheweek’send,forthebank’snetliquidityposition?

A.-200

B.-80

C.-40

D.80

11

FRMPre-StudyPracticeExamPartII

13.Pillar1oftheBaselIIframeworkallowsbankstousevariousapproachestocalculatethecapitalrequirementsfor

creditrisk,operationalrisk,andmarketrisk.WhichofthefollowingBaselIIapproachesallowsabanktouseits

ownestimatesofrecoveryrates?

A.Thestandardizedmeasurementapproachforoperationalrisk

B.Theadvancedinternalratings-basedapproachforcreditrisk

C.Thefoundationinternalratings-basedapproachforcreditrisk

D.Thefundamentalreviewofthetradingbook(FRTB)approachforsecuritizedproducts

14.Aregionalcommercialbankisconsideringaloantobefullyfundedbydeposits,withthefollowingparameters:

•Loanamount:CNY3.8billion

•Averageannualinterestratepaidondeposits:0.6%

•Annualinterestratereceivedonloan:4.1%

•Expectedloss:3.0%offacevalueofloan

•Annualoperatingcosts:0.3%offacevalueofloan

•Economiccapitalrequiredtosupporttheloan:15.0%

•Averagepre-taxreturnoneconomiccapital:2.0%

•Effectivetaxrate:38%

•Othertransfercosts:CNY0

Whatistheafter-taxRAROCforthisloan?

A.0.31%

B.2.07%

C.3.33%

D.10.07%

12

FRMPre-StudyPracticeExamPartII

15.TheCROofahedgefundaskstheriskteamtodevelopaterm-structuremodelthatisappropriateforfitting

interestratesforuseinthefund’soptionspricingpractice.Theriskteamevaluatesseveralinterestrate

modelswithdriftandvolatilityfunctions.Whichofthefollowingisacorrectdescriptionofthespecified

model?

A.IntheHo-Leemodel,thedriftoftheinterestrateprocessispresumedtobeconstant.

B.IntheHo-Leemodel,shorttermratesarepresumedtohaveamean-reversionfunction.

C.IntheCox-Ingersoll-Rossmodel,shorttermratesarepresumedtohavealognormaldistribution.

D.IntheCox-Ingersoll-Rossmodel,thebasis-pointvolatilityoftheshort-termrateispresumedtobe

proportionaltothesquarerootoftherate.

16.Thedirectorofanequitymutualfundisreviewingaportfolioconstructiontechniqueproposedbyanew

portfoliomanagerwhohasrecentlybeenallocatedcapitaltomanage.Thefundtypicallygrantsitsportfolio

managersflexibilityinselectingandimplementingappropriateportfolioconstructionproceduresbutrequires

thatanymethodologyadoptedfulfillskeyriskcontrolobjectivessetbythefirm.Whichofthefollowing

portfolioconstructiontechniquesanditscapabilityforriskcontrolinportfolioconstructioniscorrect?

A.Quadraticprogrammingallowsforriskcontrolthroughparameterestimationbutgenerallyrequiresmany

moreinputsestimatedfrommarketdatathanotherportfolioconstructiontechniquesrequire.

B.Thescreeningtechniqueprovidessuperiorriskcontrolbyconcentratingstocksinselectedsectorsbased

onexpectedalpha.

C.Whenusingthestratificationtechnique,riskcontrolisimplementedbyoverweightingthecategorieswith

lowerrisksandunderweightingthecategorieswithhigherrisks.

D.Whenusingthelinearprogrammingtechnique,riskiscontrolledbyselectingtheportfoliowiththelowest

levelofactiverisk.

13

FRMPre-StudyPracticeExamPartII

17.AriskmanagerhasaskedajunioranalysttoestimatetheimplieddefaultprobabilityforaBBB-rateddiscount

corporatebond.Thecontinuouslycompoundedannualyieldsofotherfixed-incomesecuritiesaregiven

below:

•3-yearTreasurynote(arisk-freebond):2%

•1-yearBBB-rateddiscountbond:4%

•2-yearBBB-rateddiscountbond:7%

•3-yearBBB-rateddiscountbond:10%

Iftherecoveryrateonthe3-yearBBB-rateddiscountbondisexpectedtobe0%intheeventofdefault,which

ofthefollowingisthebestestimateoftherisk-neutralprobabilitythattheBBB-rateddiscountbonddefaults

withinthenext3years?

A.6.55%

B.14.55%

C.21.34%

D.25.92%

18.AbankisusingtheVaRandstressedVaRmarketriskframeworkinlinewiththeBaselII.5guidelines.The

bank’sinternalmodelsformarketriskhavegeneratedthefollowingriskmeasures(inUSDmillion)forthe

currenttradingbookpositions:

LatestAvailable

10-dayStressed

VaR

Average10-day

VaRofPrevious60

Days

Average10-day

StressedVaRof

Previous60Days

Confidence

Level

LatestAvailable

10-dayVaR

95.0%

99.0%

99.9%

289

513

607

501

993

271

489

564

572

1,187

1,412

1,347

AssumingthesupervisoryauthorityhassetthemultiplicationfactorsforboththeVaRandthestressedVaR

valuesto3,whatisthecorrectcapitalrequirementforgeneralmarketriskforthebankunderBaselII.5?

A.USD1,248million

B.USD1,533million

C.USD4,557million

D.USD5,028million

14

FRMPre-StudyPracticeExamPartII

19.BankHJKhaswrittenputsonBankPQRstocktoahedgefundandsoldCDSprotectiononBankPQRtoa

manufacturer.BankHJKandBankPQRoperateinseveralofthesamebusinessesandgeographiesandtheir

performancesarehighlycorrelated.Manyinthemarketareconcernedthatrisinginterestratescould

negativelyimpactthecreditqualityofBankHJK’snumerousborrowers,whichinturnwouldincreasethe

creditspreadofBankHJK.Fromtheperspectivesofthehedgefundandthemanufacturer,whichofthe

followingiscorrectwithrespecttotheircounterpartyriskexposuretoBankHJK?

HedgeFund

Manufacturer

Right-wayrisk

Wrong-wayrisk

Right-wayrisk

Wrong-wayrisk

A.Right-wayrisk

B.Right-wayrisk

C.Wrong-wayrisk

D.Wrong-wayrisk

20.AwealthmanagementfirmhasJPY86billioninassetsundermanagement.Theportfoliomanagercomputes

thedailyVaRatvariousconfidencelevelsasfollows:

ConfidenceLevel

VaR(JPY)

95.0%

95.5%

96.0%

96.5%

97.0%

97.5%

98.0%

98.5%

99.0%

99.5%

397,463,000

401,682,500

406,224,500

418,453,000

428,934,000

439,415,500

451,993,000

468,763,000

490,773,000

524,663,000

WhatistheclosestestimateofthedailyESatthe97.5%confidencelevel?

A.JPY398million

B.JPY400million

C.JPY484million

D.JPY497million

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FRMPre-StudyPracticeExamPartII

2020FRMPartIIPre-StudyPracticeExam–AnswerKey

1.

2.

A

B

B

C

D

C

A

D

C

A

B

C

B

B

D

A

C

D

D

C

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

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FRMPre-StudyPracticeExamPartII

1.Aduediligencespecialistatanassetmanagementfirmisevaluatingtheriskmanagementprocessofa

hedgefundinwhichthefirmisconsideringmakinganinvestment.Whichofthefollowingstatementsbest

describesappropriatecriteriathespecialistshoulduseforsuchanevaluation?

A.Thefirmshouldensurethatthehedgefundallowsdirect,in-personcommunicationswiththefund’s

seniormanagementorkeydecisionmakersatthefund.

B.Today'sbestpracticesinriskmanagementrequirethatafundemployindependentriskservice

providersandthattheseserviceprovidersplayimportantrolesinrisk-relateddecisions.

C.Whenconsideringinvestinginaleveragedfund,thecompanyshouldnotinvestinthefundunlessthe

fund’sgrossleverageratioisabovethepeergroupaverage.

D.Itiscrucialtoassessthefund'svaluationpolicy,andingeneralifmorethan10%ofassetpricesare

basedonmodelpricesorbrokerquotes,thespecialistshouldrecommendagainstinvestmentinthe

fund.

CorrectAnswer:

Explanation:

A

Aiscorrect.Investorsshouldmakesuretheyhaveaccesstothepeopleatthetopof

thefirm;theactualrisktakersanddecisionmakers,sothattheyhaveabettersenseof

whatisreallygoingonatthatfirm.Directaccesstofoundersorseniormanagementis

preferredaspartofcontinuingduediligencebutiftheyarenotavailablethenthefund

shouldstrivetocommunicatewithmanagerswhoperformday-to-dayinvestment

tasksatthefund.Communicationwithinvestorrelationsisnotsufficient.

Bisincorrect.Manyfundsemployindependentriskserviceproviderstoreportrisksto

investors,butthesefirmsdonotgetinvolvedinriskrelateddecisionmaking.

Cisincorrect.Investorsshouldevaluatetheconsideredfund’scurrentandhistorical

leveragefiguresbutalsounderstandhowandwhythesefiguresmightdeviatefrom

thefund’speers.

Disincorrect.Whileitisimportanttoknowwhatpercentageoftheassetsisexchange-

tradedandmarkedtomarket,whatmightbeacceptablemaydifferdependingonthe

strategyofthefund.

Section:

RiskManagementandInvestmentManagement

Reference:

KevinR.Mirabile,HedgeFundInvesting:APracticalApproachtoUnderstanding

InvestorMotivation,ManagerProfits,andFundPerformance,2ndEdition(Hoboken,

NJ:WileyFinance,2016).Chapter12-PerformingDueDiligenceonSpecificManagers

andFunds

LearningObjective:Describecriteriathatcanbeevaluatedinassessingafund’sriskmanagementprocess.

17

FRMPre-StudyPracticeExamPartII

2.Abankbuysabondonitscouponpaymentdate.Threemonthslater,inordertogenerateimmediate

liquidity,thebankdecidestorepothebond.Detailsofthebondandrepotransactionareasfollows:

Notional(USD)

100,000

6%

Coupon(semi-annual)

Currentbondprice

Repohaircut

97

10%

4%

Repointerest

Iftherepocontractexpires6monthsfromnow,whatisthebank’sexpectedcashoutflowattheendofthe

repotransaction?

A.USD89,046

B.USD90,423

C.USD93,177

D.USD100,470

CorrectAnswer:

Explanation:

B

A.Incorrect.Leftouttheaccruedinterestof6%*0.25inthecorrectequationforcash

inflow.

B.Correct.Cashinflowatbeginningofrepo:(100,000)*(97%+6%*0.25)*(1-10%)=

88,650;Cashoutflowatendofrepo:88,650*(1+4%*0.5)=90,423

C.Incorrect.Used1insteadof97%forpriceinthecorrectequationforcashinflow.

D.Incorrect.Leftouthaircutof10%inthecorrectequationforcashinflow.

LiquidityandTreasuryRisk

Section:

Reference:

BruceTuckmanandAngelSerrat,“FixedIncomeSecurities:ToolsforToday’sMarkets,

3rdEdition”.Chapter12.RepurchaseAgreementsandFinancing

LearningObjective:Discussthemechanicsofrepurchaseagreements(repos)andcalculatethesettlementfor

arepotransaction.

18

FRMPre-StudyPracticeExamPartII

3.Amarketriskmanagerseekstocalculatethepriceofa2-yearzero-couponbond.The1-yearinterestrate

todayis8.0%.Thereisa50%probabilitythatthe1-yearinterestratewillbe10.0%in1yearanda50%

probabilitythatitwillbe6.0%in1year.Assumingtheriskpremiumofdurationriskis40bpseachyear,and

thebond’sfacevalueisEUR1,000,whichofthefollowingshouldbethepriceofthezero-couponbond?

A.EUR822.98

B.EUR854.47

C.EUR905.30

D.EUR921.66

CorrectAnswer:

Explanation:

B

Biscorrect.

Wecanfindthepriceofthe2-yearzero-couponbondbyusingabinomialtreeasfollows:

1/2

1/2

10%

6%

8%

Tofindthevalueatdate0,wemustfirstfindtheexpectedvalueofthepriceondate1:

10001000

1

(

+

EUR922.8234,

)=

21.1041.064

andthendiscountthisbytherateatdate0:

1

10001000

(

+

)

21.1041.064

=EUR854.4661.

1.08

Section:

MarketRiskMeasurementandManagement

Reference:

BruceTuckmanandAngelSerrat,FixedIncomeSecurities,3rdEdition(Hoboken,NJ:John

Wiley&Sons,2011),Chapter8-TheEvolutionofShortRatesandtheShapeoftheTerm

Structure

LearningObjective:Calculatethepriceandreturnofazerocouponbondincorporatingariskpremium.

19

FRMPre-StudyPracticeExamPartII

4.TheCEOofalargebankhasreportedthatthebank’stoolsandprocessesformanagingoperationalriskare

consistentwithBaselIIandBaselIIIguidelinesforoperationalriskgovernance.Whichofthefollowingactions

andprinciplesofthebankiscorrect?

A.Thebankusesoutsourcingtomitigatetheoperationalriskthatshouldbeaddressedbymanagement.

B.Asthehighest-levelexecutiveofseniormanagement,theCEOapprovesthebank’sriskappetiteand

tolerancestatementforoperationalrisk.

C.Theoperationalriskmanagementframeworkestablishedbythebankissubjecttoindependentreview.

D.Departmentmanagersmonitortheirdepartments’operationalriskprofilesandlossesandenforce

compliancewithcompanyriskpolicies.

CorrectAnswer:

Explanation:

C

Ciscorrect.Theboardofdirectorsofabankshouldensurethatthebank’sframeworkis

subjecttoindependentreviewbyauditorotherappropriatelytrainedparties.

Aisincorrect.“Banksshouldviewrisktransfertoolsascomplementaryto,ratherthana

replacementfor,thoroughinternaloperationalriskcontrol.”Risktransfervia

outsourcingshouldnotbeusedtorelievemanagementoftheirresponsibilitytomanage

operationalrisk,andoutsourcingcanactuallyintroduceadditionaloperationalrisksto

thebank.

Bisincorrect.Theboardofdirectorsshouldapproveandreviewtheriskappetiteofthe

bank.

Disincorrect.Staffresponsibleformonitoringandenforcingcompliancewiththe

institution’sriskpolicyshouldhaveauthorityindependentfromtheunitstheyoversee.

Section:

OperationalRiskandResiliency

Reference:

PrinciplesfortheSoundManagementofOperationalRisk,(BaselCommitteeonBanking

SupervisionPublication,June2011).

LearningObjective:Summarizethefundamentalprinciplesofoperationalriskmanagementassuggestedby

theBaselcommittee.

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FRMPre-StudyPracticeExamPartII

5.Amid-sizeinvestmentbankconductsseveraltrades.Aspartofitsriskcontrol,ithasenteredintonetting

agreementson10equitytradepositionswithanaveragecorrelationof0.27.Thefirmbelievesthatitcan

improveuponthediversificationbenefitofnettingbyrevisingthecurrentagreement.Assumingvaluesof

futuretradepositionsarenormallydistributedwithzeromeanandequalvariance,whichofthefollowing

tradecombinationswouldincreasethefirm’sexpectednettingbenefitthemostfromthecurrentlevel?

TradeCombination

NumberofPositions

AverageCorrelation

L

M

P

5

8

12

14

0.29

0.20

-0.05

-0.04

Q

A.TradecombinationL

B.TradecombinationM

C.TradecombinationP

D.TradecombinationQ

CorrectAnswer:

Explanation:

D

Discorrect.Thenettingfactorrepresentstheratioofnettogrossexposureandis

n+n(n−1)

expressedas:

NettingFactor=

n

wherenrepresentsthenumberofexposuresandρrepresentstheaveragecorrelation.

Therefore,a