International Certificate in Banking Risk and Regulation (ICBRR) v6.0

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Exam contains 347 questions

Which of the following attributes are typical for early models of statistical credit analysis?

  • A. These models assumed the default of any obligor was independent of the default of any other.
  • B. The underlying default assumptions were analytically inconvenient.
  • C. The underlying default assumptions failed to develop relatively simple formulas for the determination of portfolio credit risk.
  • D. These models effectively incorporated herd behavior.

Answer : A

A credit analyst wants to determine if her bank is taking too much credit risk. Which one of the following four strategies will typically provide the most convenient approach to quantify the credit risk exposure for the bank?

  • A. Assessing aggregate exposure at default at various time points and at various confidence levels
  • B. Simplifying individual credit exposures so that they can be combined into a simplified expression of portfolio risk for the bank
  • C. Using stress testing techniques to forecast underlying macroeconomic factors and bank's idiosyncratic risks
  • D. Analyzing distribution of bank's credit losses and mapping credit risks at various statistical levels

Answer : A

When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no credit losses.

  • A. Symmetric; less
  • B. Symmetric; greater
  • C. Asymmetric; less
  • D. Asymmetric; greater

Answer : D

Which one of the following four statements regarding bank's exposure to credit and default risk is INCORRECT?

  • A. The more the bank diversifies its credit portfolio, the better spread its credit risks become.
  • B. In debt management, the value of any loan exposure will change typically in a fashion similar the same way that an equity investment can.
  • C. In debt management, the goal is to minimize the effect of any defaults.
  • D. Default risk cannot be hedged away fully, and it will always exist for the holder of the credit or for the person insuring against the credit or default event.

Answer : B

To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements:

I. Bonds -

II. Marketable loans -

III. Credit card loans -

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

Answer : C

As DeltaBank explores the securitization business, it is most likely to embrace securitization to:
I. Bring transparency to the bank's balance sheet
II. Create a new profit center for the bank
III. Strategically release risk capital and regulatory capital for redeployment
IV. Generate cash for additional debt origination

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

Answer : D

After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ risk on the residual pieces of the credit portfolio, and as a result it ___ return on equity for the bank.

  • A. Decreases; increases;
  • B. Increases; increases;
  • C. Increases; decreases;
  • D. Decreases; increases;

Answer : B

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 -

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

Answer : C

The pricing of credit default swaps is a function of all of the following EXCEPT:

  • A. Probability of default
  • B. Duration
  • C. Loss given default
  • D. Market spreads

Answer : B

To safeguard its capital and obtain insurance if the borrowers cannot repay their loans,
Gamma Bank accepts financial collateral to manage its credit risk and mitigate the effect of the borrowers' defaults. Gamma Bank will typically accept all of the following instruments as financial collateral EXCEPT?

  • A. Unrated bonds issued and traded on a recognized exchange
  • B. Equities and convertible bonds included in a main market index
  • C. Commercial debts owed to a company in a form of receivables
  • D. Mutual fund shares and similar unit investment vehicles subject to daily quotes

Answer : C

Except for the credit quality of the Credit Default Swap protection seller, the following relationship correctly approximates the yield on a risk-free instrument:

  • A. Bond + CDS
  • B. Bond + CDS + Market Spread
  • C. Bond - CDS
  • D. Bond - CDS - Market spread

Answer : A

Which of the following factors can cause obligors to default at the same time?
I. Obligors may be harmed by exposures to similar risk factors simultaneously.
II. Obligors may exhibit herd behavior.
III. Obligors may be subject to the sampling bias.
IV. Obligors may exhibit speculative bias.

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

Answer : C

After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ return on equity for the bank, because the cash generated by the risk-transfer and the overall ___ of the bank's exposure to the risk.

  • A. Increases; increase;
  • B. Increases; reduction;
  • C. Decreases; increase;
  • D. Decreases; reduction;

Answer : B

When a credit risk manager analyzes default patterns in a specific neighborhood, she finds that defaults are increasing as the stigma of default evaporates, and more borrowers default. This phenomenon constitutes

  • A. Moral hazard
  • B. Speculative bias
  • C. Herd behavior
  • D. Adverse selection

Answer : C

ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies has an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, what would be the probability of a cumulative $40 million loss from these two mortgage borrowers?

  • A. 0.01%
  • B. 0.1%
  • C. 1%
  • D. 10%

Answer : C

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Exam contains 347 questions

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