CPM Risk Management

Question 1

Which risk measure quantifies the maximum expected loss over a given time period at a specified confidence level?

Accepted Answer

Value at Risk (VaR)

Answer

Standard deviation

Answer

Beta

Answer

Sharpe ratio

Question 2

A portfolio manager notices that a fund's returns correlate strongly with a broad market index during downturns but diverge during upturns. This best describes which type of risk?

Accepted Answer

Downside correlation risk

Answer

Liquidity risk

Answer

Currency risk

Answer

Concentration risk

Question 3

Which of the following is a limitation of using historical standard deviation as a standalone risk measure for a portfolio?

Accepted Answer

It assumes returns are normally distributed and stationary

Answer

It is difficult to calculate

Answer

It ignores market beta

Answer

It only applies to equity portfolios

Question 4

Conditional Value at Risk (CVaR) is considered superior to VaR because it:

Accepted Answer

Captures the average loss beyond the VaR threshold

Answer

Is easier to compute

Answer

Ignores tail events

Answer

Uses only historical data

Question 5

A portfolio manager wants to hedge interest rate risk in a bond portfolio. The most direct hedging instrument would be:

Accepted Answer

Interest rate swaps or Treasury futures

Answer

Equity index futures

Answer

Currency forwards

Answer

Commodity options

Question 6

Which risk management approach involves setting maximum allowable loss thresholds and automatically reducing exposure when they are breached?

Accepted Answer

Stop-loss rules

Answer

Passive indexing

Answer

Duration matching

Answer

Factor tilting