The videos follow the FRM syllabus, and subjects range from introductions of topics such as "What is Financial Risk" to in-depth discussions of advanced subject matter such as derivatives and securities. Videos include example spreadsheets, allowing you to follow along as David Harper teaches critical concepts and how to use them. Join the more than 55, subscribers by clicking the subscribe button and get notified when new videos are added! Rarely do I find the best return on my investment and for sure this was one of them. This actually inspired me to work harder.
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Foundations of Risk Management P1. Board responsibilities, levered beta, and CAPM Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. The difficulty level is a notch, or two notches, easier than bionicturtle. As these represent "easier than our usual" practice questions, they are well-suited to online simulation. Wacha Corporation is a conglomerate with three business units Hardware, Software, and Services.
Wacha has leverage ratio of 4. While the riskfree rate is 1. The board typically neither builds valuation models nor directly verifies. However, key functions of the board do typically include B , C and D. Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures 2.
Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning 4.
Aligning key executive and board remuneration with the longer term interests of the company and its shareholders 5. Ensuring a formal and transparent board nomination and election process 6. Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions 7.
They must help identify potential risks and provide scenarios that the managers may not have considered. During a crisis it should remain informed and the board or a committee of the board should remain in contact during the period in which the situation is most critical.
APT and multi-factor models Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. While the riskfree rate is 2. This is due to a simple naive assumption of constant perpetual dividend discounted by the CAPM-based rate; i. Which statement is true? Gregory is analyzing the historical performance of two commodity funds Fund I and Fund II that each track the same index benchmark.
He collated the following data below: Please note that "excess return" is also known as "active return. On this basis, which fund performs better?
Each of the following is true about the traditional risk-adjusted performance measures i. In the answer to that question Practice Since neither residual return nor risk is given, only the latter is an option. Another perspective is simply: the market portfolio, with beta of 1. A portfolio with a zero realized alpha lies on the same SML as the market portfolio; and all portfolios that lie on the SML have the same Treynor ratio.
In regard to A , about the Treynor measure Amenc writes "Calculating [the Treynor measure] requires a reference index to be chosen to estimate the beta of the portfolio. The results can then depend heavily on that choice, a fact that has been criticized by Roll Case Studies Financial Disasters Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. Which of the following most accurately reflects a key risk that was realized in the Metallgesellschaft case study?
False, LTCM held long term positions; in fact, their problem was arguably a lack of short-term liquidity which did not afford the patience they sought Allen: "[LTCM Investors] were locked into their investments for extended time periods generally, 3 years.
This reflected the basic investment philosophy of LTCM, which was to locate trading opportunities that represented what they believed were temporary disruptions in price relationships due to short-term market pressures, which were almost certain to be reversed over longer time periods.
To take advantage of such opportunities, they needed to know they had access to patient capital that would not be withdrawn if markets seemed to be temporarily going against them. This also helped to explain why LTCM was so secretive about its holdings.
These were not quick in-and-out trades, but long-term holdings, and they needed to prevent other firms from learning the positions and trading against them. They are cases in which the firm or its investors and lenders were seriously misled about the size and nature of the positions it had Disasters due to misleading reporting Roll return roll yield for a long futures position is negative in contango This is a fundamental concept explored further in Topic 3. If the futures curve is in backwardation i.
Under such a scenario, the roll return is profitable to long positions as they are entered at lower prices then they are exited. Conversely, the long position in contango produces a negative roll yield. In the same way, a short futures position profits from the roll return in contango and loses from the roll return in backwardation; just as the long position loses from the roll in contango and profits from the roll in backwardation.
Risk management and data quality Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. According to COSO, which of the following risks is defined as "the acceptable level of variation relative to achievement of a specific objective, and often is best measured in the same units as those used to measure the related objective?
For example, one might expect that the total sales value of all the transactions each day is not expected to exceed percent of the running average total sales for the previous 30 days.
Risk tolerance The COSO paper has a focus on the relationship between risk appetite and its "tactical and operational" expression in the form of risk tolerances: "Risk appetite is the amount of risk, on a broad level, an organization is willing to accept in pursuit of value. Each organization pursues various objectives to add value and should broadly understand the risk it is willing to undertake in doing so Risk tolerances The acceptable level of variation relative to achievement of a specific objective, and often is best measured in the same units as those used to measure the related objective.
In setting risk tolerance, management considers the relative importance of the related objective and aligns risk tolerances with risk appetite. Operating within risk tolerances helps ensure that the entity remains within its risk appetite and, in turn, that the entity will achieve its objectives. Risk tolerances guide operating units as they implement risk appetite within their sphere of operation.
Risk tolerances communicate a degree of flexibility, while risk appetite sets a limit beyond which additional risk should not be taken. Uniqueness measures the number of inadvertent duplicate records that exist within a data set or across data sets. Asserting uniqueness of the entities within a data set implies that no entity exists more than once within the data set and that there is a key that can be used to uniquely access each entity and only that specific entity within the data set.
Financial firms hold many derivative positions and their risk properties can change very rapidly with no trading whatsoever; e. When we discussed that problem, we focused on it as an inventory issue. However, there is a different perspective on this problem which is particularly relevant in financial firms. For the typical non-financial firm, risks often change slowly. Not so for financial firms. For a financial firm, risks can change sharply even if the firm does not take new positions.
The problem arises from the fact that financial firms have many derivatives positions and positions with embedded derivatives. Over time, these positions have become more complex. The risk properties of portfolios of derivatives can change very rapidly with no trading whatsoever. This is because complex derivatives often have exposures to risk factors that are extremely sensitive to market conditions. Strikingly, it is perfectly possible with some products to see changes such that, during the same day, a security could have an exposure to interest rates so that it gains substantially if interest rates increase and later in the day have an exposure such that it loses substantially if interest rates increase.
For such a product, hedges adjusted daily could end up creating large losses because the hedge that is optimal at the start of the day could end up aggravating the risk exposure at the end of the day. In regard to Conflicts of Interest, which is true in principle about the responsibility of members: a Members will not knowingly perform risk management services directly or indirectly involving an actual but not potential conflict of interest, under any conditions b Members will not knowingly perform risk management services directly or indirectly involving an actual or potential conflict of interest, under any conditions c Members will not knowingly perform risk management services directly or indirectly involving an actual or potential conflict of interest, unless full disclosure has been provided to GARP d Members will not knowingly perform risk management services directly or indirectly involving an actual or potential conflict of interest, unless full disclosure has been provided to all affected parties of any actual or apparent conflict of interest GARP Members agree to uphold and implement Rules of Conduct, which includes each of the following EXCEPT for: a Shall exercise reasonable judgment in the provision of risk services while maintaining independence of thought and direction.
Members will not knowingly perform risk management services directly or indirectly involving an actual or potential conflict of interest unless full disclosure has been provided to all affected parties of any actual or apparent conflict of interest Members cannot out-source or delegate their ethical responsibility to others; should consider the wider impact of their assessments and actions; and should always continue to perfect their expertise The 2. Professional Standards include 2.
Fundamental Responsibilities include "GARP Members should always continue to perfect their expertise; GARP Members have a personal ethical responsibility and cannot out-source or delegate that responsibility to others. GARP Members commit to considering the wider impact of their assessments and actions on their colleagues and the wider community and environment in which they work.
The Rules require compliance with current "applicable laws, rules, and regulations governing professional activities Miscellaneous Foundation Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. When approaching financial derivatives--e. While the approaches to pricing and risk measurement often share much in common e. Each of the following is an obvious, blatant failure of risk management EXCEPT which of the following by itself does not necessarily imply a risk management failure?
False, the reverse is true: derivatives valuation wants high precision for pricing purposes, while risk measurement is satisfied with approximations consistent with the study of future distributional tails, we cannot expect precision!
According to Stulz, there are six types of risk management failures: 1. Mismeasurement of known risks. Failure to take risks into account. Failure in communicating the risks to top management. Failure in monitoring risks. Failure in managing risks. Failure to use appropriate risk metrics.
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