3)Company XYZ has borrowed R90 million from you for one year but has provided no collateral. You have estimated XYZ has a 1.19% probability of defaulting over one year. You have also estimated that, if XYZ were

to default, /2% o your exposure would be recovered. alculate the expected credit loss on this transaction.

1. R1 071 000
2. R771 120
3. R300 000
4. R90 000

4)Basel Il is:

1. Not law. Local regulators will adapt it to local conditions and then convert it into legislation. Then imple- mentation becomes mandatorv
2. Not law. Local regulators are powerless to force banks to implement it
3. Law - every country in the world that has a bank must implement it immediately.
4. Law - every country in the world that has a bank must implement it, but they have the option to imple-

ment it over several vears

5)Which situation would be an operational risk as defined by the Basel Committee on Banking Supervision?

1. Change in market value of an asset
2. Sovereign debt rescheduling
3. Data centre disruption
4. railure ot a counterparty

6)You have granted an unsecured loan to a company which will be paid off by a single payment of $50 million.

The company has a 3% chance of defaulting over the lite ot the transaction. It default occurs, /0% ot your exposure would be recovered. What is the expected credit loss on this transaction?

A. $450.000

B. $750,000

C. $1,050,000

D. $1,500,000

7)Which of the following does NOT constitute an operational risk

1. the bank is sued for aggressive selling of credit card insurance.
2. a trader sells 10 shares for R100 each instead of 100 shares for R10 each
3. a fire destroys the bank's headquarters
4. a flu epidemic forces many workers to stay at home

8)Pillar 1, 2 and 3 of the New Basel Accord respectively represent:

1. Supervisory review - Minimum regulatory capital - Disclosure
2. Disclosure - Minimum regulatory capital - Supervisory review
3. Minimum regulatory capital - Supervisory review - Disclosure
4. Minimum regulatory capital - Disclosure - Supervisory review

9)Which of the following correctly ranks the risks (from most important to least important in terms of regulatory capital held) for a large investment bank with 50 000 employees worldwide?

1. Market risk > Credit risk > Operational risk
2. Market risk > Operational risk > Credit risk
3. Credit risk > Market risk > Operational risk
4. Credit risk > Operational risk > Market risk

10

For a current yield curve as below:

Maturity Yield

7.0%

ly

2y

4y

7.5%

7.9%

8.2%

The market expects interest rates to

1. remain the same over the next few years
2. decrease over the next few years
3. increase over the next few years move random v because interest rates are stochastic

11

A credit analyst measures the risk weight for a portfolio of loans = 75% for an exposure of R100m. The 99.9th

percentile loss on this portfolio is R7m. The UL and EL for this portfolio, respectively are:

1. R7m and RIm
2. R6m and RIm
3. R7m and impossible to tell without knowing the LGD
4. R6m and impossible to tell without knowing the LGD

12

Which if the following correctly ranks the risks indicated for a large retail bank?

1. Market risk > Credit risk > Operational risk
2. Market risk > Operational risk > Credit risk
3. Credit risk > Market risk > Operational risk
4. Credit risk > Operational risk > Market risk

13

For the following two-share (annualised) covariance matrix, the annual volatilities of A and B and the correlation between them are, respectively:

B

A 0.04 0.03

B

0.03

0.09

A. 20%, 60%, 0.30

B. 20%, 30%, 0.30

C. 40%, 90%, 0.30

D. 20%, 30%, 0.50

14

A bank suffers from severe liquidity issues for 15 months. Which of the following is TRUE?

1. The bank is insolvent
2. If the bank satisfies the liquidity coverage ratio requirements, it will survive
3. If the bank satisfies the net stable fund ratio requirements, it will survive
4. The bank will need to satisfy both the liquidity coverage ratio and net stable fund ratio requirements, to

ensure its survival

15

For a credit card loan portfolio, a bank has retained RIm in provisions. The exposure weighted recovery rate of the portfolio is 80% and the total exposure of the loan is R500m. The exposure weighted PD for this portfolio Is

A. 0.20%

B. 1.00%

C. 0.25%

D. Impossible to tell without knowing the correlation between the PD and the LGD.

16

For these statements about Basel III, which is TRUE? Basel III

1. almost completely replaced Basel I
2. was designed to fix the problems unforeseen by the credit crisis and represents only a portion of the regulatory landscape
3. has not yet been fully implemented
4. is onlv relevant in the EU

17

If a market risk analyst finds the 50-day variance of a share's returns = 0.04, what is this share's 8-day volatili-

E. 4.00%

F. 0.08%

G. 8.00%

H. 2.82%

18

The 10-day volatility of a share's returns is 3.162%. The 100-day variance is:

A. 316.2

B. 3.162

C. 0.010

D. 1.000

19

An investment return has a relatively large standard deviation. This implies that the investment may be suitable for an investor with a

1. high risk strategy
2. low risk strategy
3. short-term requirement

D. medium-term requirement

20

The expected value of a random variable is the

1. value that has the highest probability of occurring
2. mean value over an infinite number of observations of the variable
3. largest value that will ever occur
4. most common value over an infinite number of observations of the variable