Investment Management - Investment Management MCQ
61. The concept that directly measures the risk of derivatives is:
- Option : C
- Explanation : Delta and gamma are measures of the movement in an option price, given a movement in the underlying. The other answers can reflect some elements of derivatives risk, but they are not direct measures of the risk.
62. The best definition of value at risk is:
- Option : C
- Explanation : VaR measures a minimum loss expected over a holding period a certain percentage of the time. It is not an expected loss nor does it reflect the maximum possible loss, which is the entire equity of the organization.
63. The methods commonly used to supplement VaR to measure the risk of extreme events is:
- Option : C
- Explanation : Scenario analysis and stress testing both examine the performance of a portfolio subject to extreme events. The other two answers are metrics used in portfolio analysis but are not typically associated with extreme events.
64. Which of the following statements is most likely accurate about insurable risks?
- Option : C
- Explanation : Insurance works by pooling risks. It is not necessarily less costly than derivatives nor does it have lower loss limits.
65. If a company has a one-day 10% Value at Risk of $1 million, this means:
- Option : A
- Explanation : The VaR measure indicates the probability of a loss of at least a certain level in a time period.
