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2016-FRR - Financial Risk and Regulation (FRR) Series

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2016-FRR Questions and Answers

Question # 1

Which one of the following four options correctly identifies the core difference between bonds and loans?

A.

These instruments receive a different legal treatment.

B.

These instruments have different pricing drivers.

C.

These instruments cannot be used to estimate credit capital under provisions of the Basel II Accord.

D.

These instruments are subject to different credit counterparty regulations.

Question # 2

Foreign exchange rates are determined by various factors. Considering the drivers of exchange rates, which one of the following changes would most likely strengthen the value of the USD against other foreign currencies?

A.

The expected US inflation rate increases

B.

The global demand for US products decreases

C.

The economic performance in the US weakens

D.

The US current account surplus increases

Question # 3

Which of the following statements regarding bonds is correct?

I. Interest rates on bonds are typically stated on an annualized rate.

II. Bonds can pay floating coupons that are directly linked to various interest rate indices.

III. Convertible bonds have an element of prepayment risk.

IV. Callable bonds have an element of equity risk.

A.

I only

B.

I and II

C.

I, II, and III

D.

II, III, and IV

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