CTP Financial Risk Management 5

Question 1

Which of the following is NOT a typical component of a corporate risk management policy statement?

Accepted Answer

Specific profit targets from speculative trading positions

Answer

Corporate risk management policies govern hedging of existing exposures, not speculation; profit targets from speculative trading would be inconsistent with a hedging mandate.

Question 2

The Dodd-Frank Act's clearing and reporting mandates for OTC derivatives were primarily intended to:

Accepted Answer

Reduce systemic risk by increasing transparency and moving standard contracts to CCPs

Answer

Dodd-Frank mandated central clearing for standardized OTC derivatives and trade reporting to swap data repositories to increase market transparency and reduce systemic risk.

Question 3

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:

Accepted Answer

Enter receive-fixed interest rate swaps with long maturities

Answer

Receiving fixed in a long-dated swap increases the portfolio's effective duration, narrowing the gap between asset and liability duration.

Question 4

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:

Accepted Answer

All fair value changes of the derivative must flow through earnings each period

Answer

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.

Question 5

In risk management, 'rollover risk' most commonly refers to:

Accepted Answer

The risk that a hedge cannot be rolled forward at acceptable cost or terms

Answer

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.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

CTP Financial Risk Management 5