İŞLETME FİNANSI II

According to the Basel Committee, market risk is defined as the risk of losses arising from movements in market prices. The correct answer is D.

Broadly speaking, credit risk is the risk that a borrower fails to meet obligations for a loan granted. The correct answer is D.

With the enhancement of the Basel-II, the Basel Committee added a new class of risk into the calculation of risk-based capital charges. The Committee defined the operational risk as the “risk of loss resulting from inadequate or failed internal processes, people and systems or from external events”. The correct answer is C.

With the enhancement of the Basel-II, the Basel Committee added a new class of risk into the calculation of risk-based capital charges. The Committee defined the operational risk as the “risk of loss resulting from inadequate or failed internal processes, people and systems or from external events”.  This definition includes human error, fraud and malice, failures of information systems, problems related to personnel management, commercial disputes, accidents, fires, and floods. In other words, its scope seems so wide that, with no significant prior data available to extract a meaningful and accurate risk profile, the practical application is difficult to immediately perceive. The correct answer is C.

The Basel Committee defines the historical simulation methodology as a simulation approach that calculates the hypothetical change in the value of the current portfolio in the light of actual historical movements in risk factors (Basel Committee on Banking Supervision, 1996b). The correct answer is B.

The Monte Carlo (MC) approach is based on the idea of simulating the changes in the portfolio value by randomly drawing from the imposed theoretical distribution function. The power of the MC simulation lies in its capability to provide approximate solutions applied to problems where no explicit probabilistic content is available. The correct answer is B.

Since the accurate forecasts of extreme realizations are crucial to VaR analysis, the EVT approach has the potential to perform better than the VCV, MC simulation, and HS approaches. The correct answer is E.

The Variance-covariance (VCV hereafter) method estimates VaR by first assuming that a portfolio comprises a small number of risk factors (equities, commodities, etc.). Each risk factor is assumed to be drawn from some known theoretical distribution. The statistical distributions of these individual risk factors are combined to yield a single theoretical distribution for the returns of the entire portfolio. This distribution is then used to calculate the VaR of the portfolio. The VCV method is also known as an analytic or parametric method. It is considered the simplest of the suggested methodologies and thus is often used by banks and other financial institutions, for example, for calculating intra-day VaR figures. The VCV approach is generally used with a normal distribution, which significantly facilitates its calculation. Of course, other distributions can be used, but at a higher computational cost.  The correct answer is E.

With the enhancement of the Basel-II, the Basel Committee added a new class of risk into the calculation of risk-based capital charges. The Committee defined the operational risk as the “risk of loss resulting from inadequate or failed internal processes, people and systems or from external events”. 

This definition includes human error, fraud and malice, failures of information systems, problems related to personnel management, commercial disputes, accidents, fires, and floods. The correct answer is A.

The risks subject to market risk capital requirements include but are not limited to:

(1) default risk, interest rate risk, credit spread risk, equity risk, foreign exchange (FX) risk and commodities risk for trading book instruments; and

(2) FX risk and commodities risk for banking book instruments.

The correct answer is A.

Risk is defined as the probability of facing loss or unintended consequences.

Market risk can be defined as the risk related to a financial institution’s financial condition resulting from unexpected market movements in the price level of certain risk factors.

Market risk can be defined as the risk related to a financial institution’s financial condition resulting from unexpected market movements in the price level of certain risk factors. These risk factors can be categorized into four main classes: equity prices, commodity prices, foreign exchange rates, and interest rates.

The risks subject to market risk capital requirements include but are not limited to: (1) default risk, interest rate risk, credit spread risk, equity risk, foreign exchange (FX) risk and commodities risk for trading book instruments; and (2) FX risk and commodities risk for banking book instruments

All features mentioned above are the key features of revised market risk framework.

Basel uses two main methods to assess market risk

Value at Risk(VaR)

Expected Shortfall(ES)

Credit risk is the risk that a borrower fails to meet obligations for a loan granted.

The Basel Committee permits banks to choose between two broad methodologies for calculating their risk-based capital requirements for credit risk:

Standardized approach and the internal ratings-based (IRB) approach.

Operational risk is simply any event that disrupts the normal flow of business processes and which generates financial loss or damage to the image of the bank .

Liquidity, frequently overlooked by financial institutions, may bring substantial losses in a very short period of time. The most profitable financial instruments tend to be illiquid assets. Assets carrying the illiquidity premium are rewarded with substantial profits in good times, however, when the tide turns, such assets may rapidly deplete a bank’s resources.