AIP Risk Assessment & Regulatory Compliance 5

Question 1

Which Basel III regulatory framework metric measures a bank's ability to survive a 30-day liquidity stress scenario by requiring sufficient high-quality liquid assets?

Accepted Answer

Liquidity Coverage Ratio (LCR)

Answer

The Liquidity Coverage Ratio (LCR) requires banks to hold enough high-quality liquid assets to cover 30 days of net cash outflows under a stress scenario.

Question 2

An investor holds a bond portfolio and is concerned about rising interest rates. Which risk metric would best quantify the portfolio's sensitivity to interest rate changes?

Accepted Answer

Modified duration

Answer

Modified duration measures the percentage change in a bond's price for a 1% change in yield, making it the primary metric for interest rate sensitivity.

Question 3

The SEC's Rule 206(4)-7 under the Investment Advisers Act requires registered investment advisers to adopt and implement written compliance policies and procedures. Who must annually review these policies?

Accepted Answer

The Chief Compliance Officer

Answer

Rule 206(4)-7 requires RIAs to designate a Chief Compliance Officer who is responsible for administering the compliance program and conducting an annual review of its adequacy.

Question 4

A hedge fund uses leverage by borrowing $50 million to supplement $100 million in equity. If portfolio losses reduce equity to $70 million while debt remains at $50 million, what is the leverage ratio?

Accepted Answer

1.71x

Answer

Leverage ratio = Total Assets / Equity = ($70M + $50M) / $70M = $120M / $70M ≈ 1.71x.

Question 5

Which of the following best describes 'regulatory risk' in the context of investment management?

Accepted Answer

The risk that changes in laws or regulations will adversely affect investment returns or firm operations

Answer

Regulatory risk is the risk that legislative or regulatory changes — such as new capital requirements or trading restrictions — will negatively impact investments or business operations.

(AIP) Accredited Investment Professional Certification Practice Test

(AIP) Accredited Investment Professional Certification Practice Test

AIP Risk Assessment & Regulatory Compliance 5