FRM FRM 4

Question 1

A swap's value to the fixed-rate payer increases when:

Accepted Answer

Interest rates rise

Answer

Interest rates fall

Answer

Volatility falls to zero

Answer

The notional is reduced

Question 2

Which Basel III ratio is a non-risk-based backstop measure constraining a bank's leverage?

Accepted Answer

Leverage ratio

Answer

Common Equity Tier 1 ratio

Answer

Net Stable Funding Ratio

Answer

Risk-weighted asset ratio

Question 3

The marginal VaR of a position measures:

Accepted Answer

The change in portfolio VaR from a small change in that position

Answer

Total portfolio VaR

Answer

The position's standalone VaR

Answer

The expected shortfall of the position

Question 4

Which of the following is an example of basis risk?

Accepted Answer

A hedge using a futures contract whose underlying differs slightly from the hedged asset

Answer

Default of a counterparty

Answer

An operational system failure

Answer

A liquidity shortfall

Question 5

Under a Gaussian copula approach to portfolio credit risk, what does the copula primarily model?

Accepted Answer

The dependence structure among defaults

Answer

Individual default probabilities

Answer

Recovery rates

Answer

Interest rate paths

Question 6

An option's theta is typically negative for a long position because:

Accepted Answer

Time decay erodes the option's value as expiration nears

Answer

Volatility always rises

Answer

Interest rates fall over time

Answer

Delta increases with time

Question 7

Which of the following best characterizes model risk?

Accepted Answer

Risk of losses from incorrect or misused models

Answer

Risk of market prices moving

Answer

Risk of borrower default

Answer

Risk of currency fluctuation