Financial Risk Management Flashcards
7 cards from real CTP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Risk Management flashcards as text
Which of the following is NOT a typical component of a corporate risk management policy statement?
Answer: Specific profit targets from speculative trading positions
Corporate risk management policies govern hedging of existing exposures, not speculation; profit targets from speculative trading would be inconsistent with a hedging mandate.
The Dodd-Frank Act's clearing and reporting mandates for OTC derivatives were primarily intended to:
Answer: Reduce systemic risk by increasing transparency and moving standard contracts to CCPs
Dodd-Frank mandated central clearing for standardized OTC derivatives and trade reporting to swap data repositories to increase market transparency and reduce systemic risk.
A pension fund manager notices that the fund's liability duration is 15 years but its asset portfolio duration is only 8 years. To reduce this duration gap, the manager should:
Answer: Enter receive-fixed interest rate swaps with long maturities
Receiving fixed in a long-dated swap increases the portfolio's effective duration, narrowing the gap between asset and liability duration.
A company discovers that it has inadvertently created a 'speculative position' rather than a qualifying hedge under ASC 815. The immediate accounting consequence is that:
Answer: All fair value changes of the derivative must flow through earnings each period
Derivatives that do not qualify for hedge accounting under ASC 815 are marked to market with all changes recorded directly in the income statement each reporting period.
In risk management, 'rollover risk' most commonly refers to:
Answer: The risk that a hedge cannot be rolled forward at acceptable cost or terms
Rollover risk in a hedging context is the risk that expiring hedge contracts cannot be replaced or rolled forward under favorable terms, leaving exposure temporarily unhedged.
When using Monte Carlo simulation for risk analysis, increasing the number of simulation trials primarily improves:
Answer: The statistical precision and stability of the risk estimates
More simulation trials reduce sampling error and produce more statistically stable estimates of risk metrics like VaR, but they do not correct flawed distributional assumptions.
Which of the following represents an operational risk rather than a financial market risk in a treasury context?
Answer: A trader entering a transaction in the wrong currency due to a system error
Operational risk arises from failures in people, processes, or systems; a transaction entry error is a process/system failure, not a market price movement.