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Free 2016-FRR Exam Braindumps (page: 18)

Page 18 of 86
PDF with 342 Questions

Which of the following risk types are historically associated with credit derivatives?
I) Documentation risk
II) Definition of credit events
III) Occurrence of credit events
IV) Enterprise risk

  1. I, IV
  2. I, II
  3. I, II, III
  4. II, III, IV

Answer(s): C



Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment.

What may happen to the Delta's initial credit parameter and the value of its loan if the machinery industry experiences adverse structural changes?

  1. Probability of default and loss at default may decrease simultaneously, while duration rises causing the loan value to decrease.
  2. Probability of default and loss at default may decrease simultaneously, while duration falls causing the loan value to decrease.
  3. Probability of default and loss at default may increase simultaneously, while duration rises causing the loan value to decrease.
  4. Probability of default and loss at default may increase simultaneously, while duration falls causing the loan value to decrease.

Answer(s): D



Which one of the following statements correctly identifies risks in foreign exchange forwards?

  1. Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are significant, and the effect of compounding is large for short periods of time.
  2. Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are small, and the effect of compounding is small for short periods of time.
  3. Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are small, and the effect of compounding is large for short periods of time.
  4. Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are significant, and the effect of compounding is small for short periods of time.

Answer(s): B



Which one of the following four models is typically used to grade the obligations of small- and medium-size enterprises?

  1. Causal models
  2. Historical frequency models
  3. Credit scoring models
  4. Credit rating models

Answer(s): C



Page 18 of 86



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