Let’s play a quiz. Post a new question along with your answer. Starting with easy one - Q) Which of the following is a financial risk? A) Settlement Risk B) Operations Risk C) Liquidity Risk Alright it’s your turn. Who’s next?
C - liquidity
But where is your question then? Post one The basic underlying goal of a currency hedge is to minimize a portfolio’s exposure to changes in: A) exchange rates. B) interest rates. C) the basis.
A) Exchange Rates Ok, here is one I REALLY hate: The CFA Institute Code of Ethics least likely requires a Member or Candidate to: A) Strive to maintain and improve the competence of others in the profession. B) Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and their profession. C) Understand and comply with all applicable laws, rules, and regulations.
A was right and C was right for liquidity. A? for ethics. A basic strategy for hedging a portfolio against currency risk, where the investor hedges the foreign currency value of the foreign asset, is called: A) cross-hedging. B) hedging the basis. C) hedging the principal.
C is correct for ethics; Hedging : A) corss hedge
Can you please not post the questions from ethics? Your answer: A was incorrect. The correct answer was C) hedging the principal. Cross-hedging is a strategy whereby a third currency is used to hedge a foreign currency exposure in a currency for which standard hedging vehicles are unavailable. Basis risk is the exposure to changes in the relationship between the forward price of an asset and its spot price. Hedging the principal is the basic strategy used by managers of foreign portfolios to minimize exposure to currency risk. Which of the following factors is the common weakness in historical and Monte Carlo Simulation approach to VAR estimation? A) For some assets you may face model risk. B) Both assume that historical variance-covariance matrix is stable. C) A lot of data is needed for time period of interest.
The correct answer was C) Understand and comply with all applicable laws, rules, and regulations. Understanding and complying with all applicable laws, rules, and regulations is required by Standard I(A) – Knowledge of the Law. The other choices are included in the Code of Ethics. A) For some assets you may face model risk?
A is right but where’s your question? Which of the following is the most difficult step in establishing an enterprise-wide risk management (ERM) system for a large firm? A) Creating a centralized data warehousing system. B) Establishing a monitoring and evaluation system. C) Developing an analytics system.
I am going to go with C) Which of the following statements concerning foundations and endowments is CORRECT? Foundations are: A) grant-making institutions and may have variable time horizons; endowments are established to permanently fund some activity, and typically have minimum payout requirements. B) grant-making institutions and may have variable time horizons; endowments are established to permanently fund some activity, and typically have infinite lives. C) established to permanently fund some activity and have high degrees of risk tolerance.
Answer was A - Establishing a centralized data warehousing system is the most difficult step in an ERM system because it involves coordinating an enormous amount of information from potentially different data systems requiring the output to be standardized and comparable across the institution. B? for foundation one Hedging a mortgage security with a short Treasury futures contract is most effective if: A) it is trading below par. B) it is trading above par. C) it is trading at par.
B Correct for the foundation one B) Above bar? To synthetically create the risk/return profile of an underlying common equity security: A) Sell short the corresponding futures contract and invest in a T-bill. B) Buy the corresponding futures contract and invest in a T-bill. C) Buy the corresponding futures contract and borrow at the risk-free rate.
Actually, I am going to go with A) Below bar
Below par was correct. B for the above one? Just guessing. A portfolio manager is considering increasing the dollar duration of a portfolio by either buying more bonds or buying futures contracts. Having used a reliable model to determine a bond position and a futures position that have equal dollar durations, choosing to add the futures position to the existing portfolio will increase the final portfolio’s dollar duration: A) by an amount equal to the proposed bond position. B) more than the proposed bond position. C) significantly, but less than the proposed bond position
B is correct: Futures + cash = security a) buy an emount equalt to the proposed bond position Which of the following statements regarding emerging market government debt is most accurate? Emerging market government debt is usually denominated in: A) a non-domestic currency which makes them less credit risky. B) a non-domestic currency which makes them more credit risky. C) the domestic currency which makes them more credit risky.
A was correct. B for non-domestic currency and more risky. Which of the following is a difference between the investment objective for a liability based benchmark and an index based benchmark? If a bond index is chosen as a benchmark the: A) objective is primarily return oriented. B) bond index has to be outperformed on a risk-adjusted basis. C) objective will be less risk averse.
B was correct. B) The effects of recent technological and institutional innovations on the market for mortgage-backed securities has increased: A) volatility risk. B) model risk. C) spread risk.
The correct answer was A) objective is primarily return oriented. B - Model Risk Which of the following statements regarding the Sharpe ratio is most accurate? A) Beta is not a component of the Sharpe ratio. B) The measure of risk used in the denominator of the Sharpe ratio is standard deviation also known as unsystematic risk. C) The denominator of the Sharpe ratio is standard deviation which is comprised partly of systematic risk called beta.
a) thinking of question
what is differece between implicit and explicit incentives?