International Certificate in Banking Risk and Regulation (ICBRR) v6.0 (ICBRR)

Page:    1 / 23   
Total 345 questions

Which one of the following four statements correctly describes an American call option?

  • A. An American call option gives the buyer of that call option the right to buy the underlying instrument on any date up to and including the expiry date.
  • B. An American call option gives the buyer of that call option the right to sell the underlying instrument on any date up to and including the expiry date.
  • C. An American call option gives the buyer of that call option the right to buy the underlying instrument on the expiry date.
  • D. An American call option gives the buyer of that call option the right to sell the underlying instrument on the expiry date.


Answer : C

According to the largest global poll of foreign exchange market participants, which one of the following four global financial institutions was the most active participant in the global foreign exchange market?

  • A. Citibank
  • B. UBS AG
  • C. Deutsche Bank
  • D. Barclays Capital


Answer : C

In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the entire trading day. Which of the following factors would most likely affect foreign exchange option values?
I. Change in the value of the underlying
II. Change in the perception of future volatility

III. Change in interest rates -

IV. Passage of time -

  • A. I, II
  • B. I, II, III
  • C. II, III
  • D. I, II, III, IV


Answer : D

Which one of the following four statements about the relationship between exchange rates and option values is correct?

  • A. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate decreases.
  • B. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate increases.
  • C. As the dollar depreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate increases.
  • D. As the dollar appreciates relative to the pound, the right to sell dollars at a fixed pound exchange rate increases.


Answer : B

Which one of the following four statements does identify correctly the relationship between the value of an option and perceived exchange rate volatility?

  • A. With increases in perceived future foreign exchange volatility, the value of all foreign exchange
  • B. As the perceived future foreign exchange volatility decreases, the value of all options increases.
  • C. As the perceived future foreign exchange volatility increases, the value of all options increases.
  • D. Option values can only change due to the factors related to the demand for specific options


Answer : C

Which one of the following four mathematical option pricing models is used most widely for pricing European options?

  • A. The Black model
  • B. The Black-Scholes model
  • C. The Garman-Kohlhagen model
  • D. The Heston model


Answer : B

A risk manager is considering how to best quantify option price dynamics using mathematical option pricing models. Which of the following variables would most likely serve as an input in these models?
I. Implicit parameter estimate based on observed market prices
II. Estimates of sensitivity of option prices to parameter changes
III. Theoretical option determination based on assumptions

  • A. I, III
  • B. II
  • C. II, III
  • D. I, II, III


Answer : D

Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a foreign exchange option?

  • A. Underlying exchange rates
  • B. Underlying interest rates
  • C. Discrete future stock prices
  • D. Option exercise price


Answer : C

Which one of the following four variables of the Black-Scholes model is typically NOT known at a point in time?

  • A. The underlying relevant exchange rates
  • B. The underlying interest rates
  • C. The future volatility of the exchange rates
  • D. The time to maturity


Answer : C

A risk manager analyzes a long position with a USD 10 million value. To hedge the portfolio, it seeks to use options that decrease JPY 0.50 in value for every JPY 1 increase in the long position. At first approximation, what is the overall exposure to USD depreciation?

  • A. His overall portfolio has the same exposure to USD as a portfolio that is long USD 5 million.
  • B. His overall portfolio has the same exposure to USD as a portfolio that is long USD 10 million.
  • C. His overall portfolio has the same exposure to USD as a portfolio that is short USD 5 million.
  • D. His overall portfolio has the same exposure to USD as a portfolio that is short USD 10 million.


Answer : A

A risk manager has a long forward position of USD 1 million but the option portfolio decreases JPY 0.50 for every JPY 1 increase in his forward position. At first approximation, what is the overall result of the options positions?

  • A. The options positions hedge the forward position by 25%.
  • B. The option positions hedge the forward position by 50%.
  • C. The option positions hedge the forward position by 75%.
  • D. The option positions hedge the forward position by 100%.


Answer : B

Which one of the following four statements correctly defines an option's delta?

  • A. Delta measures the expected decline in option with time and is usually expressed in years.
  • B. Delta measures the effect of 1 bp in interest rate change on the option price.
  • C. Delta is the multiplier that best approximates the short-term change in the value of an option.
  • D. Delta measures the impact of volatility on the price of an option.


Answer : C

In the United States, during the second quarter of 2009, transactions in foreign exchange derivative contracts comprised approximately what proportion of all types of derivative transactions between financial institutions?

  • A. 2%
  • B. 7%
  • C. 25%
  • D. 43%


Answer : B

Which of the following statements about the interest rates and option prices is correct?

  • A. If rho is positive, rising interest rates increase option prices.
  • B. If rho is positive, rising interest rates decrease option prices.
  • C. As interest rates rise, all options will rise in value.
  • D. As interest rates fall, all options will rise in value.


Answer : A

To estimate a partial change in option price, a risk manager will use the following formula:

  • A. Partial change in option price = Delta x Change in underlying price
  • B. Partial change in option price = Delta x (1+ Change in underlying price)
  • C. Partial change in option price = Delta x Gamma x Change in underlying price
  • D. Partial change in option price = Delta x Gamma x (1+ Change in underlying price)


Answer : A

Page:    1 / 23   
Total 345 questions