Test your basic knowledge |

FRM: Foundations Of Risk Management

Instructions:
  • Answer 50 questions in 15 minutes.
  • If you are not ready to take this test, you can study here.
  • Match each statement with the correct term.
  • Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Volatility of unexpected outcomes






2. Probability that a random variable falls below a specified threshold level






3. Probability distribution is unknown (ex. A terrorist attack)






4. Liquidity and maturity transformation - Brokers - Reduces transaction and information costs between households and corporations






5. People risk = fraud - etc. - Model risk = flawed valuation models - Legal risk = exposure to fines and lawsuits






6. Percentile of the distribution corresponding to the point which capital is exhausted - Typically - a minimum acceptable probability of ruin is specified - and economic capital is derived from it






7. When negative taxable income is moved to a different year to offset future or past taxable income






8. Proportion of loss that is recovered - Also referred to as "cents on the dollar"






9. Multibeta CAPM Ri - Rf =






10. Valuation focuses on mean of distribution vs risk mgmt focuses on potential variation in payoffs - needs more precision for pricing - VAR doesn't b/c noise cancels out






11. Wrong distribution - Historical sample may not apply






12. Covariance = correlation coefficient std dev(a) std dev(b)






13. Designate ERM champion - usually CRO - Make ERM part of firm culture - Determining all possible risks - Quantifying operational and strategic risks - Integrating risks (dependencies) - Lack of risk transfer mechanisms - Monitoring






14. Asset-liability/market-liquidity risk






15. Relative portfolio risk (RRiskp) - Based on a one- month investment period






16. Return is linearly related to growth rate in consumption






17. Asses firm risks - Communicate risks - Manage and monitor risks






18. Inability to make payment obligations (ex. Margin calls)






19. Quantile of an empirical distribution






20. CAPM requires the strong form of the Efficient Market Hypothesis = private information






21. Law of one price - Homogeneous expectations - Security returns process






22. The uses of debt to fall into a lower tax rate






23. When two payments are exchanged the same day and one party may default after payment is made






24. Obtained unsecured borrowing of 300 million by exploiting flaw in computing US government bond collateral - Had only 20 million in capital - Chase absorbed losses since they brokered deal - Called for better process control and more precise methods f






25. Xmvp = ((variance of b) - covariance)/((variance of a) + (variance of b) - 2 * covariance)






26. Concentrate on mid- region of probability distribution - Relevant to owners and proxies






27. Hazard - Financial - Operational - Strategic






28. Managing risks is a core activity at financial companies - Industrial companies hedge financial risks






29. Need to assess risk and tell management so they can determine which risks to take on






30. Long Term Capital Management - Renowned quants produced great returns with arbitrage- type trades - Unexpected and extreme events resulted in devaluation of Russian Rouble - resulting in a 3.65 billion dollar bailout - Failure to account for illiquid






31. Rp = XaRa + XbRb






32. Capital Asset Pricing Model Ri = Rf + beta*(Rm - Rf)






33. Country specific - Foreign exchange controls that prohibit counterparty's obligations






34. Equilibrium can still be expressed in returns - covariance - and variance - but they become complex weighted averages






35. Derives value from an underlying asset - rate - or index - Derives value from a security






36. Human - created: business cycles - inflation - govt policy changes - wars - Natural: weather - quakes






37. Leeson took large speculative position in Nikkei 225 disguised as safe transactions by fake customers - Earthquake increased volatility and destroyed short put options - Losses of 1.25 billion and forced bankruptcy - Necessity of an independent tradi






38. Potential amount that can be lost






39. Economic Cost of Ruin(ECOR) - Enhancement to probability of ruin where severity of ruin is reflected






40. Risk of loses owing to movements in level or volatility of market prices






41. Gamma = market price of the consumption beta - Beta = E(r) of zero consumption beta






42. Sold complex derivatives to Proctor & Gamble and Gibson - Were sued due to claims that they deceived buyers - Need for better controls for matching complexity of trade with client sophistication - Need for price quotes independent of front office Met

Warning: Invalid argument supplied for foreach() in /var/www/html/basicversity.com/show_quiz.php on line 183


43. Capital structure (financial distress) - Taxes - Agency and information asymmetries






44. Prices of risk are common factors and do not change - Sensitivities can change






45. 1971: Fixed Exchange rate system broke down and was replaced by more volatile floating rate - 1973: Oil price shocks - - >high inflation - - >interest rate swings - 1987: Black Monday - OCt 19 - mkt fell 23% - 1989: Japanese stock price bubble -






46. May not scale over time- Historical data may be meaningless - Not designed to account for catastrophes - VaR says nothing about losses in excess of VaR - May not handle sudden illiquidity






47. Future price is greater than the spot price






48. Simple form of CAPM - but market price of risk is lower than if all investors were price takers






49. Efficient frontier with inclusion of risk free rate - Straight line with formula Rc = Rf + ((Ra - Rf)/std dev(a))*std dev(c) - c is the total portfolio - a is the risky asset






50. Firms became multinational - - >watched xchange rates more - deregulation and globalization







Sorry!:) No result found.

Can you answer 50 questions in 15 minutes?


Let me suggest you:

Browse all subjects

Browse all tests

Most popular tests



Major Subjects

Tests & Exams


AP
CLEP
DSST
GRE
SAT
GMAT

Browse all subjects

Browse all tests

Most popular tests