pre test l 1 version a9 (english)

7/29/2019 Pre Test L 1 Version A9 (English)

1/28

1

1. The risk associated with the long-term business decisions made by a banks seniormanagement:a. competitive riskb. strategic risk (B)c. reputational riskd. business risk2. Option that gives the holder the right to exercise anytime before the expiry date is:a. American (A)b. Europeanc. Asiand. Bermudan

3. A bank is an institution which holds a banking license and perform the followingjobs:a. accepts depositsb. makes loansc. accepts and issues checksd. a, b, and c are correct (D)

4. Financial stability is consistent with:a. stability in the value of moneyb. the periodic failure of individual financial institutions (B)c. the maintenance of lender of last resort role of the central bankd. the insolvency of the banking system

5. Corporate Treasury model can be described as:a. Trading business separate from their capital and liquidity management

activities (A)b. Trading business does not separate from their capital and liquidity

management activitiesc. The treasury manage other risks such as operational risk and currency riskd. The treasury doesnt manage other risks such as operational risk and currency

risk6. Where are other risks wished to be covered under Basel II Accord?

a. Under Pillar 1b. Under Pillar 2c. Under Pillar 2 and Pillar 3 (C)d. Under Pillar 3

7. Which of the following products is not derivative:a. bond (A)b.

interest rate swapsc. forward rate agreement

d. currency swap8. One-size-fits all approach of Basel I can be best seen on:

a. The implementation of the same risk weight on corporate loan rated AAA andBBB (A)

b. The same minimum capital requirement of any risk weighted assetsc. The difference of risk weight among asset classesd. None of the above

9. The risk of losses associated with the possibility that a counterparty will fail tomeet its obligations:

a. operational risk


2/28

2

b. liquidity riskc. credit risk (C)d. market risk

10.Basel II requires banks to measure their capital requirements because:a. The less liquidity a bank has the more capital it needs to holdb. The more loans a bank has the more capital it needs to holdc. The more deposits a bank has the more capital it needs to holdd. The more risk a bank has the more capital it needs to hold (D)

11.When someone enter into an option contract by acquiring the right, he has topay:

a. callb. putc. optiond. premium (D)

12.Chance of a bad outcome is:a. risk (A)b. standard deviationc. varianced. value at risk

13.The risk weights of balance sheet items used in Basel I are:a. 0%; 10%; 20%; 50%; 100% (A)b. 0%; 25%; 50%; 75%; 100%c. 0%; 20%; 40%; 60%; 100%d. None of the above

14.The Basel I Accord aimed to establish the relationship between:a. Risk and Debtsb. Risk and Assetsc. Assets and Capitald. Risk and Capital (D)

15.Commodity position risk is:a. The potential loss from an adverse change in commodity prices (A)b. The potential loss due to an adverse change in interest ratesc. The risk of an adverse movement in the price of an individual security

due to factors that only apply to that security or issuerd. The potential loss due to an adverse change in foreign exchange rates

16.Financial stability is defined as the maintenance of a situation in which thecapacity of financial institution and market to, except:

a.

Provide liquidity efficientlyb. Mobilize savings efficientlyc. Manage market risk accurately (C)d. Allocate investment prudently

17.Tier 2 capital excludes:a. Undisclosed reservesb. Asset revaluation reservesc. Non-cumulative perpetual preferred stock (C)d. Hybrid capital instruments and subordinated debt

18.Which of the following instruments that is not categorized as a derivativeinstrument?

a. Interest rate swap


3/28

3

b. Equity futuresc. Optiond. Foreign exchange borrowings (D)

19.Other risks are covered under:a. Pillar 1b. Pillar 2c. Pillar 3d. b and c are correct (D)

20.Bank C holds USD 2m of unallocated capital and wishes to lend to an OECDbank. How much can it lend?

a. $60 millionb. $80 millionc. $125 million (C)d. $250 million

21.Which one of the following is the problem with the Basel I approach:a. Bank hold the amount of capital for regulatory purposes depends on its

credit standingb. To get a certain amount of capital for regulatory purposes, bank can

not charge all borrowers the samec. From a point of view of Basel I, Bank has a matter to lend personal

lending or to lend to governmentd. Banks which lend to companies with a very good credit standing are

obliged to hold exactly the same amount of capital for regulatorypurposes as banks lending to companies with poor credit standing (D)

22.The relationship between the effective interest rate paid and the maturity dateof an investment at a given time:

a. yield curve (A)b. yield to maturityc. spot rated. forward rate

23.Derivatives are traded on:a. exchangesb. OTC marketc. either a or b (C)d. neither of the above

24.The most important resource a bank has in ensuring its solvency is:a. sufficient capital (A)b.

prudent managementc. good risk management

d. protection from competition25.Why do banks need to be strictly regulated?

a. Common banks have a very limited capitalb. The failure of a bank will result in the loss of its customersc. The impact of bank failure can be systemic (C)d. The risks in the banking system are extremely high

26.The following are methods allowed for operational risk measurement underBasel II, except:

a. Standardized approachb. IRB approach (B)


4/28

4

c. Advanced measurement approachd. Basic indicator approach

27.Pillar 3 is designed to help banks shareholders and market analysts and leadsto an improved transparency on issues such as:

a. banks asset portfoliob. its risk profilec. managementd. a and b correct (D)

28.Buying and selling of shares of companies quoted on recognized stockexchanges is:

a. Equity trading (A)b. Bond tradingc. Commodity tradingd. Derivative trading

29.Which of the following statements is true regarding Pillar 3 of Basel II?a. Covers a review of specific type interest rate in the banking bookb. Covers what will be required in terms of public disclosure by banks

(B)c. Covers a review of specific type residual risksd. Covers the minimum capital for credit risk, interest rate risk and

operational risks30.The inability of a company to repay any type of claim when it becomes due:

a. defaultb. insolvency (B)c. illiquidityd. none of the above

31.The new Basel II Framework is structured around three concepts of regulation.These are known as the three pillars and under Pillar 1:

a. Banks are required to compute the minimum capital for credit risk,market risk and reputational risks

b. Banks are required to compute the minimum capital for credit risk,market risk and legal risks

c. Banks are required to compute the minimum capital for credit risk,market risk and operational risks (C)

d. Banks are required to compute the minimum capital for credit risk,interest rate risk and operational risks

32.Which one of the following is an example of traded market risk?a.

The American savings and loan crisis in the 1980sb. The Midland Bank crisis of 1989

c. The Continental Illinois crisis of 1984d. The Barings crisis of 1995 (D)

33.In the Basel 2, the mechanism of internal and external governance in freemarket economy in the absence of direct government intervention ismentioned under the terminology of:

a. Good corporate governanceb. Internal method measurementc. Market disciplines (C)d. Bank transparency


5/28

5

34.The run on a Vietnamese Bank in October 14, 2003 was a result of damagingrumor spread that:

a. The director passed awayb. The director fled the country (B)c. The director was arrestedd. The NPL was soaring35.Interest rate risk faced by the bank due to its normal business with its

customers is called:a. Interest rate risk in the banking book (A)b. Credit riskc. Systematic riskd. Specific risk

36.Company B has borrowed from Bank A on which it is paying the prime rate.Bank A has funded the loan with similar currency, the same tenor and maturitythrough the inter-bank market at 6 month LIBOR. What kind of risk the BankA may face on this deal?

a. Basis Risk (A)b. Foreign exchange riskc. Interest rate riskd. Commodity position risk

37.Which of the following statements is not a part of Credit Risk Mitigationtechniques?

a. Cash flow Monitoringb. Liabilities Management (B)c. Recovery Managementd. Securitization

38.Many banks were shifting their internal credit processes towards the use ofquantitative risk models with direct similarities to their market VaRtechniques, due to:

a. The success of many banks VaR models (A)b. The success of advanced measurement approach of operation riskc. The success of Basel Committeed. The success of their Trading Desk

39.Grading models in Basel Accord II employ calculation of risk that is:a. Done on an individual obligor basis (A)b. Done on an total obligor basisc. Characterized by the application of loan pricing techniquesd.

Characterized by the application of loan portfolios40.Return on regulatory capital is a performance measure used to:

a. Ensure that a transaction creates a return sufficient to allow the bank toraise new capital (A)

b. Ensure that a transaction comply with the regulationc. Ensure that a transaction creates a return sufficient to cover operational

costsd. Ensure that a transaction comply with the bank standard operating

procedures41.Banks employ a number of different techniques and policies to manage credit

risk in order to minimize the probability or consequences of credit loss. These

includes:


6/28

6

a. Grading models for individual loansb. Securitizationc. Collaterald. All of the above (D)

42.A call option is defined as an option that gives the buyer:a. The right, but not the obligation, to sell or buy the underlyinginvestment (A)b. The right to sell the underlying investmentc. The right and the obligation to buy the underlying investmentd. The right to buy and to sell the underlying investment at the later date

43.Credit grading model will generate:a. Loss given defaultb. Potential credit riskc. Exposure at defaultd. Probability of default (D)

44.The Basel II Framework is very specific regarding what is included under theheading other risks. Three risks, considered other risks are:

a. Strategic, business, and legal riskb. Reputational, legal, and people riskc. Strategic, business, and reputational risk (C)d. System risk, systemic risk, and systematic risk

45.The right to sell underlying instrument at predetermined price at or for acertain time is:

a. Call optionb. Put option (B)c. Optiond. Premium

46.Off balance sheet items may be measured under Basel I through:a. Their capital equivalenceb. The credit risk equivalence (B)c. Their asset value equivalenced. Their nominal value equivalence

47.Solvency of a bank concerns:a. Shareholders and customersb. Employeesc. Those in charge of managing the economyd. All of the above (D)

48.Many major banks currently have capital to risk-weighted asset ratios, asdisclosed in their Report and Accounts, at level of 10% to 12%, far in excessof any regulatory ratio. The reasons for this excess are:

a. The regulatory ratio is a minimum ratio below which the capital of thebank should not fall; hence, bank exceed the minimum ratio to avoidproblem with banking license

b. In some countries, the supervisors set required ratios of capital to risk-weighted assets (RWAs) on a bank specific basis. This ratio normallyabove 8%.

c. Banks owned economic capital calculation may produce differentresults from capital requirement under Basel II

d. All of the above. (D)


7/28

7

49.Basel II covers the following risks:a. market riskb. operational riskc. credit riskd. all of the above (D)

50.Which of the following statements most consistent with the term liquiditycrisis?a. The bank is unable to repay any type of claim when it becomes dueb. A certain bank has lost its customers confidence and then result in

massive withdrawals that couldnt meet by the bank (B)c. The bank is facing insolvency problemd. None of the above


8/28

1

1. Banking legislation enacted in 1992 and 1998 created two types of bankswithin Indonesia. They are:

a. Commercial bank and peoples credit bank (A)b. State owned bank and privately owned bankc. Big bank and small bankd. Regional bank and national bank2. Cohort analysis is to ensure that a portfolio is well diversified. This kind of

analysis is used in:a. Recovery managementb. Loan portfolio management (B)c. Cash flow monitoringd. Securitization

3. The Basel II definition of operational risk excludes:a. Legal riskb. Reputational risk (B)c. People riskd. Internal process risk

4. Based on Basel II accord market risk is defined as:a. The risk of losses from on balance sheet position arising from

movements in market pricesb. The risk of losses from off balance sheet position arising from

movements in market pricesc. The risk of losses from on and off balance sheet position arising from

movements in market prices (C)d. The risk of losses arising from the fall in the price of bonds.

5. The Orange County case was caused by the following, except:a. Unsupervised investment activity by the county treasurer (A)b. By investing in derivative position the treasurer had placed a very big

bet the interest rates would either go down or remain lowc. The Fed instigated the series of interest rate increases in 1994d. Interest rates were declined sharply in 1995

6. The supervisor requires ratio of 8 % of regulatory capital to:a. Assetsb. Average assetsc. Weighted Assetsd. Risk Weighted Assets (RWA) (D)

7. Banks are constrained in their capital structure by regulation aimed atprotecting:a. shareholders

b. the economy (B)c. customersd. management

8. With the implementation of Basel II, the overall capital of banking industrywill:

a. increase due to the addition of operational riskb. decreasec. unchanged since the committee believe the capital is broadly correct

(C)

d. cannot be determined


9/28

2

9. General market risk comprises of the following subsets of risks, except:a. Equity position risk (A)b. Debt position riskc. Commodity position riskd. Foreign exchange risk

10.Which of the followings that is not correct in term of an option contract?a. Option contracts introduce new risks over any above the risk inherentin the underlying instrument

b. Options can be created on almost any cash or derivative instrument andthese are even options on options

c. The seller of the options has an open ended risk on the contract andreceives a premium in compensation

d. An option contract gives the buyer the right and the obligations to enterinto an underlying contract at an agreed price (D).

11.What is systemic risk?a. The risk that a bank failure could result in the damage to the economyb. The risks that affect all banking industry as a system such as interest

rate risk, commodity price risk, inflation, and the like (B)c. The risk that a bank fail to implement adequate control systemd. The risk loss happens in a bank that has no effect to other banks

12.One of the most significant residual risks usually found in a portfolio ofsimilar deals is Basis Risk, meaning that the risk of a change in:

a. The relationship between the price of a risk position and the price ofthe instrument used to hedge the risk position (A)

b. The price of derivative portfolioc. The daily movement of the different ratesd. The price of the instrument

13.The creation and subsequent success of the market risk amendment was amajor milestone in the development of:

a. Market based regulationb. Risk based regulation (B)c. Interest rate based regulationd. Trading based regulation

14.Balance sheet asset class that has been multiplied by its risk weight is:a. Risky assetb. Risk-weighted asset (B)c. Credit riskd.

Credit risk equivalence15.What is the main issue on loan portfolio management?

a. Understanding the risk associated with a whole portfolio of the loan.b. Understanding credit concentration riskc. Understanding the effect of concentrating lending.d. All of the above (D)

16.Security First National Bank case in 1995 is a great example ofa. Liberalization and competition in bankingb. The success of product innovation in bankingc. The failure of IT-driven bank (C)d. Financial product innovation

17.Which one of the following is not included in credit risk mitigation:


10/28

3

a. Securitizationb. Collateralc. Recovery managementd. None of the above (D)

18.The Basel Committee in developing the Basel I accord had main objectives,except:

a. To strengthen the soundness and stability of the international bankingsystem

b. To create a fair framework for measuring the capital adequacy ofinternationally active banks

c. To create additional capital of the international banking system (C)d. To seek to have the framework applied consistently with a view to

diminishing competitive inequalities between internationally activebanks

19.Which statement is true?a. Market risk is the risk of losses from on balance sheet positions arising

from movements in market pricesb. Market risk is the risk of losses from on and off balance sheet positions

arising from movements in market prices (B)c. Market risk is comprised only general market riskd. Option a and c are true

20.Why do banks called highly leveraged?a. The bank has large amounts of debt compared to its capital (A).b. The bank has large amounts of capital compared to its debtc. The amount of banks debt and capital is the same.d. The bank has smaller amount of debt compare to its capital.

21.The process of revaluing positions using current market prices is called:a. Marking-to-market (A)b. Marking-to-bookc. Asset revaluationd. All of the above

22.Basel I contains only:a. Pillar 1 of Basel II (A)b. Pillar 1 and 2 of Basel IIc. Pillar 2 of Basel IId. Pillar 2 and 3 of Basel II

23.A performance measure used to ensure that a transaction creates a returnsufficient to allow the bank to raise new capital:a. Return on regulatory capital (A)

b. Return on equityc. Return on assetd. Economic value added

24.The primary improvement that the Basel II Accord made to the Basel I Accordwas:

a. Increased risk sensitivity of the minimum capital requirement (A)b. Increased amount of capital held by banksc. Coverage of all banks not just internationally active banksd. Its coverage of a wider range of financial institutions than just banks


11/28

4

25.The new Basel II Framework is structured around three concepts of regulation.These are known as the three pillars. Pillar 3 covers:

a. A review of specific type interest rate in the banking bookb. What will be required in terms of public disclosure by banks? (B)c. A review of specific type residual risksd. The minimum capital for credit risk, interest rate risk and operationalrisks

26.Yield curves are extensively used in the management of:a. Foreign exchange rates riskb. Equity position riskc. Interest rate risk (C)d. Commodity position risk

27.Option style that gives the holder the right to exercise only at the expirationdate is:

a. Americanb. European (B)c. Asiand. Bermudan

28.Within Pillar 1 of Basel II, banks are required to compute the minimum capitalfor:

a. Credit risk, market riskb. Credit risk, interest riskc. Credit risk, market risk, and operational risk (C)d. Credit risk, market risk, and interest risk

29.If all other things are held constant, the higher the leverage ratioa. The higher the risk (A)b. The higher the return on equityc. The higher the asset turn overd. a and b

30.A banks equity positions are officially valued against the:a. Last price traded by the bankb. Brokers real-time pricesc. Stock exchange closing price (C)d. Traders price

31.The risk of losses in on- and off-balance sheet positions arising frommovements in market prices is called:

a. Market risk (A)b.

Credit riskc. Trading risk

d. Operational risk32.In 1995 Baring Brothers and Co. Ltd., London, collapsed after incurring losses

of GBP 827 m, following the failure of its:a. Internal control processes and proceduresb. Engaged in heavy derivatives trading (B)c. Inability to predict the market pricesd. Capital insufficiency

33.The Basel II regulations have moved operational risk management forward.They require, for the first time, that, they require a bank to measure it and


12/28

5

allocate capital towards operational risk in the same way as for credit andmarket risk.

a. Quantify operational riskb. Measure operational riskc. Allocate capital towards operational riskd. All of the above (D)34.Bank A has 7-year US$10 million interest rate swap with an OECD bank. The

mark to market value of the swap is $ 1 million. What is the credit exposureusing Current Exposure method?

a. $ 1 millionb. $ 1.05 million (B)c. $1.1 milliond. $2.0 million

35.In accordance to formalize the existing practices of many regulators, thesupervisory is design to bring attention on

a. Any capital requirement above the minimum level computed underPillar 1

b. Review on specific type of interest riskc. Set out a minimum standard on capital requirementd. All above are true (D)

36.The Pillar 1 approach marks for the first time that operational risk will becovered by a quantitative approaches, which may be estimated using:

a. Basic Indicator Approach (A)b. Internal-Rating-Based Approachesc. Stress Testingd. Back Testing

37.The number G10 member countries isa. 10 (A)b. 11c. 12d. 13

38.An estimate of the likely maximum amount that could be lost on a banksportfolio of market risks within a given time period and with a certain degreeof statistical confidence:

a. Value at Risk (A)b. Credit at Riskc. RiskMetricsd.

Historical simulation39.Unlike regulations in any other industries, regulation in banking industry

covers:a. Bank as an institution and its productsb. Bank as an institution onlyc. Banks products and services onlyd. Bank as an institution and customers (D)

40.Under which pillar, the responsible regulatory body, through its supervisorydepartment, is expected to enquire into a broad range of other risks to whichan individual bank may be subject?

a. Pillar 1b. Pillar 2 (B)


13/28

6

c. Pillar 3d. All the three pillars

41.The method that allowed a bank to calculate a percentage of the notionalprincipal as the exposure without having to calculate the current value of acontract is:

a. Current exposure methodb. Original exposure method (B)c. Conversion factor methodd. Potential exposure method

42.The risk of an adverse movement in market price that are applied across arange of instruments is called:

a. Market riskb. Specific market riskc. General market risk (C)d. Interest market risk

43.In which years did banking legislation create two types of banks in IndonesiaCommercial banks and Peoples Credit Banks:

a. 1992 and 1996b. 1996 and 1998c. 1992 and 1998 (C)d. 1994 and 1996

44.Banks exposed to economic shocks and systemic risks may suffer a significantincrease in the number of customer defaulting. The increase in the default ratecan be attributed to the followings, except:

a. An increase in interest rateb. A significant rise in unemploymentc. Bad management of the customers (C)d. The credit standing of companies affected by the rapid deterioration of

the economy45.If the current mark-to-market value of a derivative transaction is +$ 5 million,

the current exposure is:a. $ 5 million (A)b. 0c. -$5 milliond. The notional amount

46.The first Accord covered:a. market riskb.

credit risk (B)c. operational risk

d. all of the above47.Foreign exchange rate swap is:

a. for exchange two business daysb. for exchange at an agreed date later than two business daysc. combination of a spot deal and a forward deal (C)d. none of the above

48.The purpose of Central Bank as Lender of The Last Resort is:a. Maintain the stability of the economic systemb. Maintain the stability of the financial system (B)c. Maintain the stability of the market system


14/28

7

d. Maintain the stability of the monetary system49.Regulation that sets forth the direction, outline, and working structures for the

banking industry over the next five to ten years is:a. Indonesian Banking Architecture (A)b. Commercial Bank Business Planc. Audit and Complianced. None of the above

50.Spot foreign exchange transactions are:a. for exchange two business days (A)b. for exchange at an agreed date later than two business daysc. combination of a spot deal and a forward deald. none of the above


15/28

1

Soal Ujian Sertifikasi Level 1 type D

1. The risk associated with the long-term business decisions made by a banks seniormanagement:a. Competitive riskb. Strategic riskc. Reputational riskd. Business risk

2. Option that gives the holder the right to exercise anytime before the expiry date is:a. Americanb. Europeanc. Asiand. Bermudan

3. A bank is an institution which holds a banking license and perform the followingjobs:a. Accepts depositsb. Makes loansc. Accepts and issues checksd. All the above answers are correct

4. Financial stability is consistent with:a. Stability in the value of moneyb. The periodic failure of individual financial institutionsc. The maintenance of lender of last resort role of the central bankd. The insolvency of the banking system

5. Corporate Treasury model can be described as:a. Trading business separate from their capital and liquidity management

activitiesb. Trading business does not separate from their capital and liquidity

management activitiesc. The treasury manage other risks such as operational risk and currency riskd. The treasury doesnt manage other risks such as operational risk and currency

risk

6. Under Basel II Accord, where are other risks wished to be covered?a. Under Pillar 1b. Under Pillar 2c. Under Pillar 2 and Pillar 3d. Under Pillar 3

7. Which of the following products is not derivative:a. Bondb. Interest rate swapsc. Forward rate agreementd. Currency swap

8. One-size-fits all approach of Basel I can be best seen on:


16/28

2

a. The implementation of the same risk weight on corporate loan rated AAA andBBB

b. The same minimum capital requirement of any risk weighted assetsc. The difference of risk weight among asset classesd. None of the above

9. The risk of losses associated with the possibility that a counterparty will fail tomeet its obligations:a. Operational riskb. Liquidity riskc. Credit riskd. Market risk

10.Basel II requires banks to measure their capital requirements because:a. The less liquidity a bank has the more capital it needs to holdb. The more loans a bank has the more capital it needs to holdc. The more deposits a bank has the more capital it needs to holdd. The more risk a bank has the more capital it needs to hold

11.When a bank enter into an option contract by acquiring the right, it has to pay:a. Callb. Putc. Optiond. Premium

12.Chance of a bad outcome is:a. Riskb. Standard deviationc. Varianced. Value at risk

13.The risk weights of balance sheet items used in Basel I area. 0%; 10%; 20%; 50%; 100%b. 0%; 25%; 50%; 75%; 100%c. 0%; 20%; 40%; 60%; 100%d. None of the above

14.The Basel I Accord aimed to establish the relationship between:a. Risk and Debtsb. Risk and Assetsc. Assets and Capitald. Risk and Capital

15.Commodity position risk is:a. The potential loss from an adverse change in commodity pricesb. The potential loss due to an adverse change in interest ratesc. The risk of an adverse movement in the price of an individual security due to

factors that only apply to that security or issuerd. The potential loss due to an adverse change in foreign exchange rates


17/28

3

16.Financial stability is defined as the maintenance of a situation in which thecapacity of financial institution and market to, except:a. Provide liquidity efficientlyb. Mobilize savings efficientlyc. Manage market risk accuratelyd. Allocate investment prudently

17.Tier 2 capital excludes:a. Undisclosed reservesb. Asset revaluation reservesc. Non-cumulative perpetual preferred stockd. Hybrid capital instruments and subordinated debt

18.Which of the following instruments that is not categorized as a derivativeinstrument?a. Interest rate swapb. Equity futuresc. Optiond. Foreign exchange borrowings

19.Other risks are covered under:a. Pillar 1b. Pillar 2c. Pillar 3d. b and c are correct

20.Bank C holds USD 2m of unallocated capital and wishes to lend to an OECDbank. Under Basel I, how much can it lend?a. $60 millionb. $80 millionc. $125 milliond. $250 million

21.Which one of the following is the problem with the Basel I approach:a. Bank hold the amount of capital for regulatory purposes depends on its credit

standingb. To get a certain amount of capital for regulatory purposes, bank can not charge

all borrowers the same

c. From a point of view of Basel I, Bank has a matter to lend personal lending orto lend to government

d. Banks which lend to companies with a very good credit standing are obligedto hold exactly the same amount of capital for regulatory purposes as bankslending to companies with poor credit standing

22.The relationship between the effective interest rate paid and the maturity date ofan investment at a given time:a. Yield curveb. Yield to maturityc. Spot rated. Forward rate


18/28

4

23.Derivatives are traded on:a. Exchangesb. OTC marketc. Either a or bd. Neither of the above

24.The most important resource a bank has in ensuring its solvency is:a. Sufficient capitalb. Prudent managementc. Good risk managementd. Protection from competition

25.Why do banks need to be strictly regulated?a. Common banks have a very limited capitalb. The failure of a bank will result in the loss of its customersc. The impact of bank failure can be systemicd. The risks in the banking system are extremely high

26.The following are methods allowed for operational risk measurement under BaselII, except:a. Standardized approachb. IRB approachc. Advanced measurement approachd. Basic indicator approach

27.Pillar 3 is designed to help banks shareholders and market analysts and leads toan improved transparency on issues such as:

a. Banks asset portfoliob. Its risk profilec. Managementd. a and b correct

28.Buying and selling of shares of companies quoted on recognized stock exchangesis:a. Equity tradingb. Bond tradingc. Commodity tradingd. Derivative trading

29.Which of the following statements is true regarding Pillar 3 of Basel II?a. Covers a review of specific type interest rate in the banking bookb. Covers what will be required in terms of public disclosure by banksc. Covers a review of specific type residual risksd. Covers the minimum capital for credit risk, interest rate risk and operational

risks

30.The inability of a company to repay any type of claim when it becomes due:a. defaultb. insolvencyc. illiquidityd. none of the above


19/28

5

31.The new Basel II Framework is structured around three concepts of regulation.These are known as the three pillars and under Pillar 1:a. Banks are required o compute the minimum capital for credit risk, market risk

and reputational risksb. Banks are required o compute the minimum capital for credit risk, market risk

and legal risksc. Banks are required o compute the minimum capital for credit risk, market risk

and operational risksd. Banks are required o compute the minimum capital for credit risk, interest rate

risk and operational risks

32.Which one of the following is an example of traded market risk?a. The American savings and loan crisis in the 1980sb. The Midland Bank crisis of 1989c. The Continental Illinois crisis of 1984d. The Barings crisis of 1995

33.In the Basel 2, the mechanism of internal and external governance in free marketeconomy in the absence of direct government intervention is mentioned under theterminology of:a. Good corporate governanceb. Internal method measurementc. Market disciplinesd. Bank transparency

34.The run on a Vietnamese Bank in October 14, 2003 was a result of damagingrumor spread that:

a. The director passed awayb. The director fled the countryc. The director was arrestedd. The NPL was soaring

35.Interest rate risk faced by the bank due to its normal business with its customers iscalled:a. interest rate risk in the banking bookb. credit riskc. systematic riskd. specific risk

36.XYZ, a USA based Company, has borrowed from Bank A on which it is payingthe prime rate. Bank A has funded the loan with similar currency through theinter-bank market at 6 month LIBOR. What kind of risk the Bank A may face onthis deal?a. Basis Riskb. Foreign exchange riskc. Interest rate riskd. Commodity position risk

37.Which of the following statements is not a part of Credit Risk Mitigationtechniques?a. Cash flow Monitoring


20/28

6

b. Liabilities Managementc. Recovery Managementd. Securitization

38.Many banks were shifting their internal credit processes towards the use ofquantitative risk models with direct similarities to their market VaR techniques,due to:a. The success of many banks VaR modelsb. The success of advanced measurement approach of operation riskc. The success of Basel Committeed. The success of their Trading Desk

39.Grading models in Basel Accord II employ calculation of risk that is:a. done on an individual obligor basisb. done on an total obligor basisc. characterized by the application of loan pricing techniquesd. characterized by the application of loan portfolios

40.Return on regulatory capital is a performance measure used to:a. ensure that a transaction creates a return sufficient to allow the bank to raise

new capitalb. ensure that a transaction comply with the regulationc. ensure that a transaction creates a return sufficient to cover operational costsd. ensure that a transaction comply with the bank standard operating procedures

41.Banks employ a number of different techniques and policies to manage credit riskin order to minimize the probability or consequences of credit loss. These

includes:a. grading models for individual loansb. securitizationc. collaterald. all of the above

42.A call option is defined as an option that gives the buyer:a. the right to buy the underlying investmentb. the right to sell the underlying investmentc. the right and the obligation to buy the underlying investmentd. the right to buy and to sell the underlying investment at the later date

43.Credit grading model will generate:a. loss given defaultb. potential credit riskc. exposure at defaultd. probability of default

44.The Basel II Framework is very specific regarding what is included under theheading other risks. Three risks, considered other risks are:a. strategic, business, and legal riskb. reputational, legal, and people riskc. strategic, business, and reputational riskd. system risk, legal risk, and reputational risk


21/28

7

45.The right to sell underlying instrument at predetermined price at or for a certaintime is:a. callb. putc. optiond. premium

46.Off balance sheet items may be measured under Basel I through:a. their capital equivalenceb. the credit risk equivalencec. their asset value equivalenced. their nominal value equivalence

47.Solvency of a bank concerns:a. shareholders and customersb. employeesc. those in charge of managing the economyd. all of the above

48.Many major banks currently have capital to risk-weighted asset ratios, asdisclosed in their Report and Accounts, at level of 10% to 12%, far in excess ofany regulatory ratio. The reasons for this excess are:a. The regulatory ratio is a minimum ratio below which the capital of the bank

should not fall; hence, bank exceed the minimum ratio to avoid problem withbanking license

b. In some countries, the supervisors set required ratios of capital to risk-weighted assets (RWAs) on a bank specific basis. This ratio normally above

8%.c. Banks owned economic capital calculation may produce different results

from capital requirement under Basel IId. All of the above answers are correct.

49.Basel II covers the following risks:a. Market riskb. Operational riskc. Credit riskd. All of the above answers are correct

50.Which of the following statements most consistent with the term liquidity crisis?a. The bank in unable to repay any type of claim when it becomes dueb. A certain bank has lost its customers confidence and then result in massive

withdrawals that couldnt meet by the bankc. The bank is facing insolvency problemd. None of the above


22/28

1

Soal Ujian Sertifikasi Level 1 type F

1. Which statement is not correct:a. Operational risk is neither a new risk nor is it unique to banksb. Operational risk is that affect all business because it is inherent in carry out a

processc. The scope of operational risk is well definedd. Many types of operational risk can occur relatively frequently

2. The level of risk taken by a bank is set by the:a. Tradersb. Supervisorc. Risk managerd. Board of Directors

3. Public companies reporting requirement are supervised by:a. Listing authoritiesb. Auditorsc. Governmentd. The Board of Directors

4. For regulatory capital calculation purposes, what market risks must beincorporated:

a. Risks in the trading book relating to interest to rate risk and equity riskb. Risks in the trading book relating to interest rate risk, equity risk, forex risk

commodity risk and risks in the banking book relating to forex and commodity

risk

c. Risks in the trading book relating to interest rate risk, equity risk, forex risk,commodity riskd. Risks in the banking book relating to forex and commodity risk

5. Reinvestment risk will not occur if:i) Interest rates remained constant over the time period the bond is heldii) The bonds were callableiii)Bonds are issued at pariv)Only zero-coupon bonds are purchaseda. I onlyb. I and IIc. II onlyd. I & IV

6. Of the following responses, which one is not part of techniques and strategies thatare required to create sound corporate governance:

a. A well articulated corporate strategyb. A dominant CEO who can single-handedly decide the direction of companyc. Clear assignment of responsibilities and decision making authoritiesd. Strong control systems

7. Due to customer failure in fulfilling the obligation, bank may face risks insustaining its business. This risk is called:


23/28

2

a. Customers riskb. Banks riskc. Market riskd. Credit risk

8. Under Standardized Approach of Basel II, how is the risk weight of sovereignbond determined?a. Using a simple risk weight based primarily on the nature of the borrowerb. Using a simple risk weight based primarily on the type of the instrumentc. Using publicly available credit ratingd. Both a & b are correct

9. The risk associated with events occurring that are beyond the direct control of thebank is called:

a. Internal process riskb. System riskc. People riskd. External risk

10.Core Principles for Effective Banking Supervision, issued in September 1997 setout ____ core principles:

a. 15b. 20c. 25d. 30

6. The risk associated with the failure of a banks processes or procedures is :

a. internal process riskb. system riskc. people riskd. external risk

7. Analysis in corporate credit will typically focus on:

a. One years historic performanceb. Two years historic performancec. Three years historic performanced. Four years historic performance

8. Credit card fraud is an example ofa. low frequency / low impactb. high frequency / low impactc. low frequency / high impactd. high frequency / high impact

9. Which of the following statements that is true in regard to sovereign risk?

a. It is a subset of country riskb. It is defined as the risk of losses associated with the possibility that a country

fail to pay either interest or principal on its borrowing

c. A type of risk that is usually assessed much in the same way as corporate debtd. All of the above statement are true


24/28

3

10. Management structure of bank must be designed to ensure that

a. any risk-taking unit is independent of the department internal audit unit andalso independent of the risk management department

b. risk management department reports to the risk-taking unitc. risk-taking unit can control the internal audit and risk management departmentd. risk-taking unit, internal audit, and risk management department can work

together to achieve the corporate goal

11. If the supervisor found deficiencies in capital assessment process, the supervisor

may

a. set targets for improvement in the risk management structureb. introduce tighter internal proceduresc. improve the quality of staff through training and recruitementd. all of the above

12. In addition to market risk, credit risk, and operational risk, Bank Indonesiarequires risk management structure of all banks to cover

a. interest rate riskb. liquidity riskc. foreign exchange riskd. sovereign risk

13. Under Basel I, sovereign risk was measured using

a. a simple risk weight based primarily on the nature of the borrower (e.g.government) and the type of instruments (e.g. guarantee, loan, etc)

b. publicly available credit ratingsc. complex quantitative modelsd. qualitative assessments

14. A measure of the distance of a value from the average (mean) is called

a. value at riskb. standard deviationc. mediand. modus

15. The nature of operational risk that is changing, due in large part to :

a.

the advent of technologyb. globalizationc. both a and bd. none of the above

16. Retail customer credit standing is established through

a. personal knowledgeb. credit scoring modelsc. financial ratio modelsd. cash flow modeling


25/28

4

17. High level of bad debts in one or several banks may bring fear to the government

and the central bank due to the fact that:

a. It drives the banks into bankruptcyb. It may translate into systemic creditc. t is the result of poor lending practicesd. All of the above b. risk

18. Under Basel II, banks are required to hold capital against operational risk. This is

covered under :

a. Pillar 1b. Pillar 2c. Pillar 3d. all of the above

19. Credit concentration risk is covered under which Pillar of Basel II?

a. First Pillarb. Second Pillarc. . Third Pillard. All of the above

20. A ratio of future interes and principal repayments due on foreign currency

borrowing divided by the income from exports and capital inflows is

a. debt coverage ratiob. debt repayment ratioc. debt service ratiod. interest and repayment coverage ratio

21. Although the Basel II Accord does not formally do this, operational risk events

can be subdivided into the following categories, except

a. internal process riskb. systems riskc. reputational riskd. external risk

22. Most corporate credit risk is established through :

a. financial ratio analysisb. options modelc.

public credit gradesd. distance to default models

23. Credit concentration risk can be analyzed by looking at the cohorts of the portfolio

which is

a. A grouping of the liabilities by different criteriab. A grouping of the assets by different criteriac. A grouping of loans by different criteriad. A grouping of corporate loans by different criteria criteria


26/28

5

24. On average, operational risk charge will account for how many percent of a

banks capital ?

a. 8%b. 10%c. 12%d. 20%

25. The most challenging job for the bank is to manage :

a. low frequency/high impact eventsb. high frequency/low impact eventsc. high frequency/high impact eventsd. low frequency/low impact events

26. How many different approaches a bank can use to calculate his credit risk under

Basel II ?

a. 1b. 2c. 3d. 4

27. Risk limits must be set :

a. by overall amountb. individually by risk type (e.g. credit risk, market risk, operational risk, etc.)c. by function (e.g. treasury, branch management, risk management, board

members)

d. all of the above28. The objective of Bank Indonesia is

a. to maintain the stability of rupiah valueb. to maintain low employmentc. both a and bd. neuther a nor b

29. The risk of losses associated with the possibility that a counterparty will fail to

meet its obligations when they fall due is

a. credit riskb. market riskc.

operational riskd. legal risk

30. Today company valuations in corporate credit analysis are often based on

tangible factor as dividends plus net assets per share rather than financial or

earning analysis because of:

a. Increasing worries about there is the ability of the companies to manipulateearnings figures

b. Financial ratio can not be used to developing credit grading modelc. Financial ratio can not be used to developing credit scoring systemd. b and c are true


27/28

6

31. If all banks are suffering from bad debt at the same time, a ___________ will

happen.

a. systemic credit riskb. systematic credit riskc. liquidity riskd. economic expansion b.

32. Which one of the following statement is most likely true in regard to Merton

approach on credit risk?

a. The probability of default can be estimated by valuing the value of equity anddebt of a certain company

b. For the bank, Lending is technically long position on put option againstthe company assets

c. The closer the value of the loan to zero, the higher the probability of defaultd. The greater the value of equity and debt in a company, the lower the

probability of default

33. Which of the following is the closest definition to credit risk?

a. The risk of losses associated with the possibility that a counter party will failto meet its obligations when they fall due

b. The risk of losses related to the fact that the term-loan granted by the bank isnot repaid by the customers

c. Any losses incurred by the bank due to its lending businessd. None of the above

34. Unexpected losses are losses that :

a. results from regularly occurring events that have limited impactb. can be ignored by banksc. result from rarely occurrring events that have a severe impactd. do not have to be included in operational risk capital calculations

35. What is the major difference between branch-based-lending and centralized

lending?

a. Branch-based lending are mostly based on personal knowledge whilecentralized lending is credit scoring model driven

b. Branch-based lending are mostly based on credit scoring model whilecentralized lending is personal driven

c.

Branch-based lending are mostly based on repayment capacity of thecustomers while centralized lending is credit scoring model driven

d. Branch-based lending are mostly based on repayment capacity of thecustomers while centralized lending is personal knowledge driven

36. Portfolio management looks at the total portfolio risk by

a. Adding the risk of the individual assetb. Adding the asset across cohortsc. offsetting risks between cohortsd. looking at the total risk change from adding an additional asset to the

portfolio.


28/28

37. Tool(s) that can be used by BI to influence liquidity is

a. acting as lender of last resortb. implementation of an exchange rate policy to maintain stability of the rupiahc. open market operationd. none of the above

38. Whose responsibility is it to ensure that a bank has implemented internal control

systems by business activity

a. Bank Indonesiab. Board of directorsc. External auditord. Risk Management Unit

39. The level of risk taken by a bank is set by the

a. tradersb. supervisorsc. risk managersd. board of directors

40. For operational risk, to calculate unexpected loss a bank uses

a. available internal datab. external data from other banksc. data from operational riskscenariosd. all of the above

41. The evaluation of creditworthiness of a person use

a. credit grading modelb. option-based modelc. credit scoring modeld. all of the above

42. The internal control system should be capable of indentifying any

a. failures in controlb. deviation from the banks documented policies, procedures, and processesc. both a and bd. neither a nor b

43. If a bank is failing to maintain its capital requirement supervisors maya. use their discretion in taking action to correct the situationb. increase a banks capital requirementc. ask the bank to resolve the underlying problemsd. all of the above

44. Basel II provide incentives for bank to use the following method for credit risk :

a. standardized approachb. credit grading modelc. advanced measurement approachd. basic indicator approach

pre test l 1 version a9 (english)

Documents