8010 Exam Dumps : Operational Risk Manager (ORM) Exam

A LIBOR based loan requires cash to move from the lenderto the borrower in the amount of the notional. The Overnight Index Swap requires only the exchange of interest payments, and therefore represents less risk.

Therefore the LIBOR based loan is a riskier exposure.

The LIBOR is generally higher than the OIS. In fact, the difference between the two, the LIBOR-OIS spread, is a standard measure of the risk premium in the market that goes up when the risk of default by counterparty banks is considered high. This is because when the market perceives the risk of default to be high, the participants need a risk premium to take on the default risk which is considerably lesser with the OIS.

The risk analyst is using the block maxima approach. The data points that result will then be used to fit a GEV distribution.

Expected shortfall refers to the expected losses beyond a specified threshold. The peaks-over-threshold approach is an alternative approach to the block maxima approach, and involves considering exceedances above a threshold. Fourier transformation is not relevant in this context, and is a non-sensical option.

Current replacement values are a very poor measure of the credit exposure from a derivative contract, because the future value of these instruments is unpredictable, ie is stochastic, and the range of values it can take increases the further ahead in the future we look. Therefore it is common for credit exposures for derivatives to be measured using forward looking exposure profiles, which are distributions of the expected value of the derivative at the time horizon for which credit risk is being measured. To be conservative, a high enough quintile of this distribution is taken as the 'loan equivalent value' of the derivative as the exposure.Choice 'c' is the correct answer.

The notional value of derivative contracts generally tends to be quite high and unrelated to their economic value or the counterparty exposure. Therefore notional value is irrelevant.