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

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A bank considers issuing new capital to increase its Tier 1 capital levels. Which of the following financial
instruments would most likely to be considered?

• A.Convertible preferred shares
• B.Long-term and callable debt convertible to equity
• C.Short-term callable debt
• D.Short-term debt convertible to non-cumulative preferred shares

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What is a difference between currency swaps and interest rate swaps?

• A.Currency swaps generate foreign exchange rate risk in addition to interest rate risk.
• B.Currency swaps are OTC derivative contracts.
• C.Currency swaps do not require the exchange of notional principal on maturity.
• D.Currency swaps allow banks and customers to obtain the risk/reward profile of long-term interest rates
  without having to use long-term funding.

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A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian
dollars and sell Brazilian reals. Alpha bank does not hold reals so it asks for a quote to buy Brazilian reals in
the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer and sells the real at
this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange
matched transaction. What is the impact of this transaction on the bank's risk profile?

• A.This transaction eliminates counterparty risk.
• B.This transaction eliminates credit risk.
• C.This transaction eliminates operational risk.
• D.This transaction eliminates market risk.

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Which one of the following four statements correctly identifies the Basel II Accord's definition of operational
risk?

• A.Operational risk is a form of risk that summarizes the risks a company or firm undertakes when it
  attempts to operate within a given field or industry.
• B.Operational risk is all the risk that is not captured by market and credit risks.
• C.Operational risk is a risk arising from execution of a company's business functions.
• D.Operational risk is the risk of loss resulting from inadequate or failed processes, people and systems or
  from external events.

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