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Free 2016-FRR Exam Braindumps
Financial Risk and Regulation (FRR) Series Questions 56–60 (page: 33)

Updated On: 9-Feb-2026
Page 33 of 70
PDF with 387 Questions

Which of the following statements represents a methodological difference between variance-covariance and full revaluation methods?

  1. Variance-covariance approach provides computational advantages over the full revaluation approach.
  2. Variance-covariance approach computes the VAR for each position separately, while the full revaluation method computes the VAR on a portfolio basis.
  3. Variance-covariance approach prices positions more accurately than the full revaluation approach.
  4. Variance-covariance approach uses only historic data to compute the covariance matrix.

Answer(s): A



Returns on two assets show very strong positive linear relationship. Their correlation should be closest to which of the following choices?

  1. 15%
  2. 45%
  3. 60%
  4. 100%

Answer(s): D



A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5% semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk manager of the bank is concerned about the sensitivity to interest rates.
Which of the following statements are true?

  1. The price of the bond paying floating interest is more sensitive to interest rates than the bond paying fixed interest.
  2. The price of the bond paying fixed interest is more sensitive to interest rates than the bond paying floating interest.
  3. Both bond prices are equally sensitive to interest rates.
  4. The given information is not enough to determine the sensitivity of the bond prices.

Answer(s): B



Which one of the following four statements represents the advantages of the historical sim-ulation method when calculating VaR?

  1. Solve the problem caused by incorrectly assuming that asset returns are normally distributed.
  2. Rely on current market data to describe the distribution of returns and determine volatilities.
  3. Are believed to be superior in accuracy predicting future levels of realized volatility.
  4. Are only using loss probabilities that can be found in tables of the standard normal distribution.

Answer(s): A



Which one of the following statements is an advantage of using implied volatility as an input when calculating VaR?

  1. Implied volatility assumes volatilities are constant which makes it easy to implement in models.
  2. Current market data is used to determine implied volatilities, which makes them forward looking measures
  3. Implied volatilities are better at predicting actual volatilities
  4. Loss probabilities from the standard normal distribution are used to compute implied volatilities, which makes it easy to compute the.

Answer(s): B



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