Pre Test L 1 Version A9 (English)

1. The risk associated with the long-term business decisions made by a bank’s senior management: a. competitive risk b. strategic risk (B) c. reputational risk d. business risk 2. Option that gives the holder the right to exercise anytime before the expiry date is: a. American (A) b. European c. Asian d. Bermudan 3. A bank is an institution which holds a banking license and perform the following jobs: a. accepts deposits b. makes loans c. accepts and issues checks d. a, b, and c are correct (D) 4. Financial stability is consistent with: a. stability in the value of money b. the periodic failure of individual financial institutions (B) c. the maintenance of ‘lender of last resort role’ of the central bank d. 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 activities c. The treasury manage other risks such as operational risk and currency risk d. The treasury doesn’t manage other risks such as operational risk and currency risk 6. Where are ‘other risks’ wished to be covered under Basel II Accord? a. Under Pillar 1 b. Under Pillar 2 c. 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 swaps c. forward rate agreement d. currency swap 8. 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 and BBB (A) b. The same minimum capital requirement of any risk weighted assets c. The difference of risk weight among asset classes d. None of the above 9. The risk of losses associated with the possibility that a counterparty will fail to meet its obligations: a. operational risk

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b. liquidity risk c. 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 hold b. The more loans a bank has the more capital it needs to hold c. The more deposits a bank has the more capital it needs to hold d. 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 to pay: a. call b. put c. option d. premium (D) 12. Chance of a bad outcome is: a. risk (A) b. standard deviation c. variance d. 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 Debts b. Risk and Assets c. Assets and Capital d. 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 rates c. The risk of an adverse movement in the price of an individual security due to factors that only apply to that security or issuer d. 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 the capacity of financial institution and market to, except: a. Provide liquidity efficiently b. Mobilize savings efficiently c. Manage market risk accurately (C) d. Allocate investment prudently 17. Tier 2 capital excludes: a. Undisclosed reserves b. Asset revaluation reserves c. 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 derivative instrument? a. Interest rate swap

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b. Equity futures c. Option d. Foreign exchange borrowings (D) 19. ‘Other risks’ are covered under: a. Pillar 1 b. Pillar 2 c. Pillar 3 d. b and c are correct (D) 20. Bank C holds USD 2m of unallocated capital and wishes to lend to an OECD bank. How much can it lend? a. $60 million b. $80 million c. $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 standing b. 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 or to lend to government d. Banks which lend to companies with a very good credit standing are obliged to hold exactly the same amount of capital for regulatory purposes as banks lending to companies with poor credit standing (D) 22. The relationship between the effective interest rate paid and the maturity date of an investment at a given time: a. yield curve (A) b. yield to maturity c. spot rate d. forward rate 23. Derivatives are traded on: a. exchanges b. OTC market c. 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 management c. good risk management d. protection from competition 25. Why do banks need to be strictly regulated? a. Common banks have a very limited capital b. The failure of a bank will result in the loss of its customers c. 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 under Basel II, except: a. Standardized approach b. IRB approach (B)

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c. Advanced measurement approach d. Basic indicator approach 27. Pillar 3 is designed to help banks’ shareholders and market analysts and leads to an improved transparency on issues such as: a. bank’s asset portfolio b. its risk profile c. management d. a and b correct (D) 28. Buying and selling of shares of companies quoted on recognized stock exchanges is: a. Equity trading (A) b. Bond trading c. Commodity trading d. 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 book b. Covers what will be required in terms of public disclosure by banks (B) c. Covers a review of specific type residual risks d. 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. default b. insolvency (B) c. illiquidity d. 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 1980s b. The Midland Bank crisis of 1989 c. The Continental Illinois crisis of 1984 d. The Barings crisis of 1995 (D) 33. In the Basel 2, the mechanism of internal and external governance in free market economy in the absence of direct government intervention is mentioned under the terminology of: a. Good corporate governance b. Internal method measurement c. Market disciplines (C) d. Bank transparency

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34. The run on a Vietnamese Bank in October 14, 2003 was a result of damaging rumor spread that: a. The director passed away b. The director fled the country (B) c. The director was arrested d. The NPL was soaring 35. 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 risk c. Systematic risk d. 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 maturity through the inter-bank market at 6 month LIBOR. What kind of risk the Bank A may face on this deal? a. Basis Risk (A) b. Foreign exchange risk c. Interest rate risk d. Commodity position risk 37. Which of the following statements is not a part of Credit Risk Mitigation techniques? a. Cash flow Monitoring b. Liabilities Management (B) c. Recovery Management d. Securitization 38. Many banks were shifting their internal credit processes towards the use of quantitative risk models with direct similarities to their market VaR techniques, due to: a. The success of many banks’ VaR models (A) b. The success of advanced measurement approach of operation risk c. The success of Basel Committee d. 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 basis c. Characterized by the application of loan pricing techniques d. 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 capital (A) b. Ensure that a transaction comply with the regulation c. Ensure that a transaction creates a return sufficient to cover operational costs d. Ensure that a transaction comply with the bank standard operating procedures 41. 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:

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a. Grading models for individual loans b. Securitization c. Collateral d. 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 underlying investment (A) b. The right to sell the underlying investment c. The right and the obligation to buy the underlying investment d. The right to buy and to sell the underlying investment at the later date 43. Credit grading model will generate: a. Loss given default b. Potential credit risk c. Exposure at default d. Probability of default (D) 44. The Basel II Framework is very specific regarding what is included under the heading ‘other risks’. Three risks, considered ‘other risks’ are: a. Strategic, business, and legal risk b. Reputational, legal, and people risk c. 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 a certain time is: a. Call option b. Put option (B) c. Option d. Premium 46. Off balance sheet items may be measured under Basel I through: a. Their capital equivalence b. The credit risk equivalence (B) c. Their asset value equivalence d. Their nominal value equivalence 47. Solvency of a bank concerns: a. Shareholders and customers b. Employees c. Those in charge of managing the economy d. All of the above (D) 48. Many major banks currently have capital to risk-weighted asset ratios, as disclosed in their Report and Accounts, at level of 10% to 12%, far in excess of any 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 with banking license b. In some countries, the supervisors set required ratios of capital to riskweighted assets (RWAs) on a bank specific basis. This ratio normally above 8%. c. Bank’s owned economic capital calculation may produce different results from capital requirement under Basel II d. All of the above. (D)

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49. Basel II covers the following risks: a. market risk b. operational risk c. credit risk d. all of the above (D) 50. Which of the following statements most consistent with the term liquidity crisis? a. The bank is unable to repay any type of claim when it becomes due b. A certain bank has lost its customers’ confidence and then result in massive withdrawals that couldn’t meet by the bank (B) c. The bank is facing insolvency problem d. None of the above

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1. Banking legislation enacted in 1992 and 1998 created two types of banks within Indonesia. They are: a. Commercial bank and peoples credit bank (A) b. State owned bank and privately owned bank c. Big bank and small bank d. Regional bank and national bank 2. Cohort analysis is to ensure that a portfolio is well diversified. This kind of analysis is used in: a. Recovery management b. Loan portfolio management (B) c. Cash flow monitoring d. Securitization 3. The Basel II definition of operational risk excludes: a. Legal risk b. Reputational risk (B) c. People risk d. 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 prices b. The risk of losses from off balance sheet position arising from movements in market prices c. 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 low c. The Fed instigated the series of interest rate increases in 1994 d. Interest rates were declined sharply in 1995 6. The supervisor requires ratio of 8 % of regulatory capital to: a. Assets b. Average assets c. Weighted Assets d. Risk Weighted Assets (RWA) (D) 7. Banks are constrained in their capital structure by regulation aimed at protecting: a. shareholders b. the economy (B) c. customers d. management 8. With the implementation of Basel II, the overall capital of banking industry will: a. increase due to the addition of operational risk b. decrease c. unchanged since the committee believe the capital is broadly ‘correct’ (C) d. cannot be determined

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9. General market risk comprises of the following subsets of risks, except: a. Equity position risk (A) b. Debt position risk c. Commodity position risk d. 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 inherent in the underlying instrument b. Options can be created on almost any cash or derivative instrument and these are even options on options c. The seller of the options has an open ended risk on the contract and receives a premium in compensation d. An option contract gives the buyer the right and the obligations to enter into 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 economy b. 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 system d. 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 of similar 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 of the instrument used to hedge the risk position (A) b. The price of derivative portfolio c. The daily movement of the different rates d. The price of the instrument 13. The creation and subsequent success of the market risk amendment was a major milestone in the development of: a. Market based regulation b. Risk based regulation (B) c. Interest rate based regulation d. Trading based regulation 14. Balance sheet asset class that has been multiplied by its risk weight is: a. Risky asset b. Risk-weighted asset (B) c. Credit risk d. Credit risk equivalence 15. 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 risk c. Understanding the effect of concentrating lending. d. All of the above (D) 16. Security First National Bank case in 1995 is a great example of… a. Liberalization and competition in banking b. The success of product innovation in banking c. The failure of IT-driven bank (C) d. Financial product innovation 17. Which one of the following is not included in credit risk mitigation:

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a. Securitization b. Collateral c. Recovery management d. 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 banking system b. To create a fair framework for measuring the capital adequacy of internationally 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 active banks 19. Which statement is true? a. Market risk is the risk of losses from on balance sheet positions arising from movements in market prices b. 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 risk d. 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 debt c. The amount of bank’s 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-book c. Asset revaluation d. All of the above 22. Basel I contains only: a. Pillar 1 of Basel II (A) b. Pillar 1 and 2 of Basel II c. Pillar 2 of Basel II d. Pillar 2 and 3 of Basel II 23. A performance measure used to ensure that a transaction creates a return sufficient to allow the bank to raise new capital: a. Return on regulatory capital (A) b. Return on equity c. Return on asset d. Economic value added 24. The primary improvement that the Basel II Accord made to the Basel I Accord was: a. Increased risk sensitivity of the minimum capital requirement (A) b. Increased amount of capital held by banks c. Coverage of all banks not just internationally active banks d. Its coverage of a wider range of financial institutions than just banks

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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 book b. What will be required in terms of public disclosure by banks? (B) c. A review of specific type residual risks d. The minimum capital for credit risk, interest rate risk and operational risks 26. Yield curves are extensively used in the management of: a. Foreign exchange rates risk b. Equity position risk c. Interest rate risk (C) d. Commodity position risk 27. Option style that gives the holder the right to exercise only at the expiration date is: a. American b. European (B) c. Asian d. Bermudan 28. Within Pillar 1 of Basel II, banks are required to compute the minimum capital for: a. Credit risk, market risk b. Credit risk, interest risk c. 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 ratio… a. The higher the risk (A) b. The higher the return on equity c. The higher the asset turn over d. a and b 30. A bank’s equity positions are officially valued against the: a. Last price traded by the bank b. Brokers real-time prices c. Stock exchange closing price (C) d. Trader’s price 31. The risk of losses in on- and off-balance sheet positions arising from movements in market prices is called: a. Market risk (A) b. Credit risk c. Trading risk d. Operational risk 32. 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 procedures b. Engaged in heavy derivatives trading (B) c. Inability to predict the market prices d. 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

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allocate capital towards operational risk in the same way as for credit and market risk. a. Quantify operational risk b. Measure operational risk c. Allocate capital towards operational risk d. 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 exposure using Current Exposure method? a. $ 1 million b. $ 1.05 million (B) c. $1.1 million d. $2.0 million 35. In accordance to formalize the existing practices of many regulators, the supervisory is design to bring attention on… a. Any capital requirement above the minimum level computed under Pillar 1 b. Review on specific type of interest risk c. Set out a minimum standard on capital requirement d. All above are true (D) 36. The Pillar 1 approach marks for the first time that operational risk will be covered by a quantitative approaches, which may be estimated using: a. Basic Indicator Approach (A) b. Internal-Rating-Based Approaches c. Stress Testing d. Back Testing 37. The number G10 member countries is a. 10 (A) b. 11 c. 12 d. 13 38. An estimate of the likely maximum amount that could be lost on a bank’s portfolio of market risks within a given time period and with a certain degree of statistical confidence: a. Value at Risk (A) b. Credit at Risk c. RiskMetrics d. Historical simulation 39. Unlike regulations in any other industries, regulation in banking industry covers: a. Bank as an institution and its products b. Bank as an institution only c. Bank’s products and services only d. Bank as an institution and customers (D) 40. Under which pillar, the responsible regulatory body, through its supervisory department, is expected to enquire into a broad range of other risks to which an individual bank may be subject? a. Pillar 1 b. Pillar 2 (B)

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c. Pillar 3 d. All the three pillars 41. The method that allowed a bank to calculate a percentage of the notional principal as the exposure without having to calculate the current value of a contract is: a. Current exposure method b. Original exposure method (B) c. Conversion factor method d. Potential exposure method 42. The risk of an adverse movement in market price that are applied across a range of instruments is called: a. Market risk b. Specific market risk c. General market risk (C) d. Interest market risk 43. In which years did banking legislation create two types of banks in Indonesia Commercial banks and People’s Credit Banks: a. 1992 and 1996 b. 1996 and 1998 c. 1992 and 1998 (C) d. 1994 and 1996 44. Banks exposed to economic shocks and systemic risks may suffer a significant increase in the number of customer defaulting. The increase in the default rate can be attributed to the followings, except: a. An increase in interest rate b. A significant rise in unemployment c. Bad management of the customers (C) d. The credit standing of companies affected by the rapid deterioration of the economy 45. If the current mark-to-market value of a derivative transaction is +$ 5 million, the current exposure is: a. $ 5 million (A) b. 0 c. -$5 million d. The notional amount 46. The first Accord covered: a. market risk b. credit risk (B) c. operational risk d. all of the above 47. Foreign exchange rate swap is: a. for exchange two business days b. for exchange at an agreed date later than two business days c. 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 system b. Maintain the stability of the financial system (B) c. Maintain the stability of the market system

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d. Maintain the stability of the monetary system 49. 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 Plan c. Audit and Compliance d. 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 days c. combination of a spot deal and a forward deal d. none of the above

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Soal Ujian Sertifikasi Level 1 type D 1. The risk associated with the long-term business decisions made by a bank’s senior management: a. Competitive risk b. Strategic risk c. Reputational risk d. Business risk 2. Option that gives the holder the right to exercise anytime before the expiry date is: a. American b. European c. Asian d. Bermudan 3. A bank is an institution which holds a banking license and perform the following jobs: a. Accepts deposits b. Makes loans c. Accepts and issues checks d. All the above answers are correct 4. Financial stability is consistent with: a. Stability in the value of money b. The periodic failure of individual financial institutions c. The maintenance of ‘lender of last resort role’ of the central bank d. 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 b. Trading business does not separate from their capital and liquidity management activities c. The treasury manage other risks such as operational risk and currency risk d. The treasury doesn’t 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 1 b. Under Pillar 2 c. Under Pillar 2 and Pillar 3 d. Under Pillar 3 7. Which of the following products is not derivative: a. Bond b. Interest rate swaps c. Forward rate agreement d. Currency swap 8. One-size-fits all approach of Basel I can be best seen on:

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a. The implementation of the same risk weight on corporate loan rated AAA and BBB b. The same minimum capital requirement of any risk weighted assets c. The difference of risk weight among asset classes d. None of the above 9. The risk of losses associated with the possibility that a counterparty will fail to meet its obligations: a. Operational risk b. Liquidity risk c. Credit risk 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 hold b. The more loans a bank has the more capital it needs to hold c. The more deposits a bank has the more capital it needs to hold d. 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. Call b. Put c. Option d. Premium 12. Chance of a bad outcome is: a. Risk b. Standard deviation c. Variance d. Value at risk 13. The risk weights of balance sheet items used in Basel I are… a. 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 Debts b. Risk and Assets c. Assets and Capital d. Risk and Capital 15. Commodity position risk is: a. The potential loss from an adverse change in commodity prices b. The potential loss due to an adverse change in interest rates c. The risk of an adverse movement in the price of an individual security due to factors that only apply to that security or issuer d. The potential loss due to an adverse change in foreign exchange rates

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16. Financial stability is defined as the maintenance of a situation in which the capacity of financial institution and market to, except: a. Provide liquidity efficiently b. Mobilize savings efficiently c. Manage market risk accurately d. Allocate investment prudently 17. Tier 2 capital excludes: a. Undisclosed reserves b. Asset revaluation reserves c. Non-cumulative perpetual preferred stock d. Hybrid capital instruments and subordinated debt 18. Which of the following instruments that is not categorized as a derivative instrument? a. Interest rate swap b. Equity futures c. Option d. Foreign exchange borrowings 19. ‘Other risks’ are covered under: a. Pillar 1 b. Pillar 2 c. Pillar 3 d. b and c are correct 20. Bank C holds USD 2m of unallocated capital and wishes to lend to an OECD bank. Under Basel I, how much can it lend? a. $60 million b. $80 million c. $125 million 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 standing b. 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 or to lend to government d. Banks which lend to companies with a very good credit standing are obliged to hold exactly the same amount of capital for regulatory purposes as banks lending to companies with poor credit standing 22. The relationship between the effective interest rate paid and the maturity date of an investment at a given time: a. Yield curve b. Yield to maturity c. Spot rate d. Forward rate

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23. Derivatives are traded on: a. Exchanges b. OTC market c. Either a or b d. Neither of the above 24. The most important resource a bank has in ensuring its solvency is: a. Sufficient capital b. Prudent management c. Good risk management d. Protection from competition 25. Why do banks need to be strictly regulated? a. Common banks have a very limited capital b. The failure of a bank will result in the loss of its customers c. The impact of bank failure can be systemic d. The risks in the banking system are extremely high 26. The following are methods allowed for operational risk measurement under Basel II, except: a. Standardized approach b. IRB approach c. Advanced measurement approach d. Basic indicator approach 27. Pillar 3 is designed to help banks’ shareholders and market analysts and leads to an improved transparency on issues such as: a. Bank’s asset portfolio b. Its risk profile c. Management d. a and b correct 28. Buying and selling of shares of companies quoted on recognized stock exchanges is: a. Equity trading b. Bond trading c. Commodity trading d. 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 book b. Covers what will be required in terms of public disclosure by banks c. Covers a review of specific type residual risks d. 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. default b. insolvency c. illiquidity d. none of the above

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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 risks b. Banks are required o compute the minimum capital for credit risk, market risk and legal risks c. Banks are required o compute the minimum capital for credit risk, market risk and operational risks d. 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 1980s b. The Midland Bank crisis of 1989 c. The Continental Illinois crisis of 1984 d. The Barings crisis of 1995 33. In the Basel 2, the mechanism of internal and external governance in free market economy in the absence of direct government intervention is mentioned under the terminology of: a. Good corporate governance b. Internal method measurement c. Market disciplines d. Bank transparency 34. The run on a Vietnamese Bank in October 14, 2003 was a result of damaging rumor spread that: a. The director passed away b. The director fled the country c. The director was arrested d. The NPL was soaring 35. 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 b. credit risk c. systematic risk d. specific risk 36. XYZ, a USA based Company, has borrowed from Bank A on which it is paying the prime rate. Bank A has funded the loan with similar currency through the inter-bank market at 6 month LIBOR. What kind of risk the Bank A may face on this deal? a. Basis Risk b. Foreign exchange risk c. Interest rate risk d. Commodity position risk 37. Which of the following statements is not a part of Credit Risk Mitigation techniques? a. Cash flow Monitoring 5

b. Liabilities Management c. Recovery Management d. Securitization 38. Many banks were shifting their internal credit processes towards the use of quantitative risk models with direct similarities to their market VaR techniques, due to: a. The success of many banks’ VaR models b. The success of advanced measurement approach of operation risk c. The success of Basel Committee d. 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 b. done on an total obligor basis c. characterized by the application of loan pricing techniques d. 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 capital b. ensure that a transaction comply with the regulation c. ensure that a transaction creates a return sufficient to cover operational costs d. ensure that a transaction comply with the bank standard operating procedures 41. 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: a. grading models for individual loans b. securitization c. collateral d. all of the above 42. A call option is defined as an option that gives the buyer: a. the right to buy the underlying investment b. the right to sell the underlying investment c. the right and the obligation to buy the underlying investment d. the right to buy and to sell the underlying investment at the later date 43. Credit grading model will generate: a. loss given default b. potential credit risk c. exposure at default d. probability of default 44. The Basel II Framework is very specific regarding what is included under the heading ‘other risks’. Three risks, considered ‘other risks’ are: a. strategic, business, and legal risk b. reputational, legal, and people risk c. strategic, business, and reputational risk d. system risk, legal risk, and reputational risk

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45. The right to sell underlying instrument at predetermined price at or for a certain time is: a. call b. put c. option d. premium 46. Off balance sheet items may be measured under Basel I through: a. their capital equivalence b. the credit risk equivalence c. their asset value equivalence d. their nominal value equivalence 47. Solvency of a bank concerns: a. shareholders and customers b. employees c. those in charge of managing the economy d. all of the above 48. Many major banks currently have capital to risk-weighted asset ratios, as disclosed in their Report and Accounts, at level of 10% to 12%, far in excess of any 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 with banking license b. In some countries, the supervisors set required ratios of capital to riskweighted assets (RWAs) on a bank specific basis. This ratio normally above 8%. c. Bank’s owned economic capital calculation may produce different results from capital requirement under Basel II d. All of the above answers are correct. 49. Basel II covers the following risks: a. Market risk b. Operational risk c. Credit risk d. 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 due b. A certain bank has lost its customers’ confidence and then result in massive withdrawals that couldn’t meet by the bank c. The bank is facing insolvency problem d. None of the above

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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 banks b. Operational risk is that affect all business because it is inherent in carry out a process c. The scope of operational risk is well defined d. Many types of operational risk can occur relatively frequently 2. The level of risk taken by a bank is set by the: a. Traders b. Supervisor c. Risk manager d. Board of Directors 3. Public companies reporting requirement are supervised by: a. Listing authorities b. Auditors c. Government d. The Board of Directors 4. For regulatory capital calculation purposes, what market risks must be incorporated: a. Risks in the trading book relating to interest to rate risk and equity risk b. 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 risk d. 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 held ii) The bonds were callable iii) Bonds are issued at par iv) Only zero-coupon bonds are purchased a. I only b. I and II c. II only d. I & IV 6. Of the following responses, which one is not part of techniques and strategies that are required to create sound corporate governance: a. A well articulated corporate strategy b. A dominant CEO who can single-handedly decide the direction of company c. Clear assignment of responsibilities and decision making authorities d. Strong control systems 7. Due to customer failure in fulfilling the obligation, bank may face risks in sustaining its business. This risk is called:

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a. b. c. d.

Customer’s risk Bank’s risk Market risk Credit risk

8. Under Standardized Approach of Basel II, how is the risk weight of sovereign bond determined? a. Using a simple risk weight based primarily on the nature of the borrower b. Using a simple risk weight based primarily on the type of the instrument c. Using publicly available credit rating d. Both a & b are correct 9. The risk associated with events occurring that are beyond the direct control of the bank is called: a. Internal process risk b. System risk c. People risk d. External risk 10. ‘Core Principles for Effective Banking Supervision’, issued in September 1997 set out ____ core principles: a. 15 b. 20 c. 25 d. 30 6. The risk associated with the failure of a bank’s processes or procedures is : a. internal process risk b. system risk c. people risk d. external risk 7. Analysis in corporate credit will typically focus on: a. One year’s historic performance b. Two years’ historic performance c. Three years’ historic performance d. Four years’ historic performance 8. Credit card fraud is an example of a. low frequency / low impact b. high frequency / low impact c. low frequency / high impact d. 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 risk b. 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 debt d. All of the above statement are true

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10. Management structure of bank must be designed to ensure that a. any risk-taking unit is independent of the department internal audit unit and also independent of the risk management department b. risk management department reports to the risk-taking unit c. risk-taking unit can control the internal audit and risk management department d. risk-taking unit, internal audit, and risk management department can work together to achieve the corporate goal 11. If may a. b. c. d.

the supervisor found deficiencies in capital assessment process, the supervisor set targets for improvement in the risk management structure introduce tighter internal procedures improve the quality of staff through training and recruitement all of the above

12. In addition to market risk, credit risk, and operational risk, Bank Indonesia requires risk management structure of all banks to cover a. interest rate risk b. liquidity risk c. foreign exchange risk d. 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 ratings c. complex quantitative models d. qualitative assessments 14. A measure of the distance of a value from the average (mean) is called a. value at risk b. standard deviation c. median d. modus 15. The nature of operational risk that is changing, due in large part to : a. the advent of technology b. globalization c. both a and b d. none of the above 16. Retail customer credit standing is established through a. personal knowledge b. credit scoring models c. financial ratio models d. cash flow modeling

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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 bankruptcy b. It may translate into systemic credit c. t is the result of poor lending practices d. 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 1 b. Pillar 2 c. Pillar 3 d. all of the above 19. Credit concentration risk is covered under which Pillar of Basel II? a. First Pillar b. Second Pillar c. . Third Pillar d. 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 ratio b. debt repayment ratio c. debt service ratio d. 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 risk b. systems risk c. reputational risk d. external risk 22. Most corporate credit risk is established through : a. financial ratio analysis b. options model c. public credit grades d. 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 criteria b. A grouping of the assets by different criteria c. A grouping of loans by different criteria d. A grouping of corporate loans by different criteria criteria

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24. On average, operational risk charge will account for how many percent of a bank’s 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 events b. high frequency/low impact events c. high frequency/high impact events d. low frequency/low impact events 26. How many different approaches a bank can use to calculate his credit risk under Basel II ? a. 1 b. 2 c. 3 d. 4 27. Risk limits must be set : a. by overall amount b. 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 above 28. The objective of Bank Indonesia is a. to maintain the stability of rupiah value b. to maintain low employment c. both a and b d. 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 risk b. market risk c. operational risk d. 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 manipulate earnings figures b. Financial ratio can not be used to developing credit grading model c. Financial ratio can not be used to developing credit scoring system d. b and c are true

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31. If all banks are suffering from bad debt at the same time, a ___________ will happen. a. systemic credit risk b. systematic credit risk c. liquidity risk d. 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 and debt of a certain company b. For the bank, Lending is technically long position on put option against the company assets c. The closer the value of the loan to zero, the higher the probability of default d. 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 fail to meet its obligations when they fall due b. The risk of losses related to the fact that the term-loan granted by the bank is not repaid by the customers c. Any losses incurred by the bank due to its lending business d. None of the above 34. Unexpected losses are losses that : a. results from regularly occurring events that have limited impact b. can be ignored by banks c. result from rarely occurrring events that have a severe impact d. 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 while centralized lending is credit scoring model driven b. Branch-based lending are mostly based on credit scoring model while centralized lending is personal driven c. Branch-based lending are mostly based on repayment capacity of the customers while centralized lending is credit scoring model driven d. Branch-based lending are mostly based on repayment capacity of the customers while centralized lending is personal knowledge driven 36. Portfolio management looks at the total portfolio risk by a. Adding the risk of the individual asset b. Adding the asset across cohorts c. offsetting risks between cohorts d. looking at the total risk change from adding an additional asset to the portfolio.

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37. Tool(s) that can be used by BI to influence liquidity is a. acting as lender of last resort b. implementation of an exchange rate policy to maintain stability of the rupiah c. open market operation d. none of the above 38. Whose responsibility is it to ensure that a bank has implemented internal control systems by business activity a. Bank Indonesia b. Board of directors c. External auditor d. Risk Management Unit 39. The level of risk taken by a bank is set by the a. traders b. supervisors c. risk managers d. board of directors 40. For operational risk, to calculate unexpected loss a bank uses a. available internal data b. external data from other banks c. data from operational riskscenarios d. all of the above 41. The evaluation of creditworthiness of a person use a. credit grading model b. option-based model c. credit scoring model d. all of the above 42. The internal control system should be capable of indentifying any a. failures in control b. deviation from the bank’s documented policies, procedures, and processes c. both a and b d. neither a nor b 43. If a bank is failing to maintain its capital requirement supervisors may a. use their discretion in taking action to correct the situation b. increase a bank’s capital requirement c. ask the bank to resolve the underlying problems d. all of the above 44. Basel II provide incentives for bank to use the following method for credit risk : a. standardized approach b. credit grading model c. advanced measurement approach d. basic indicator approach

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