Fin_353-Final

Fin_353-Final - Fin 353Final Exam May 19, 2009 1. Model...

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Fin 353—Final Exam May 19, 2009 1. Model risk is less of a problem for: a) Nonlinear products b) Actively traded products c) Structured products 2. Which one of the following is not a problem related to using models for valuation? a) Behavior of individuals b) Parameters of the model when they’re time-varying c) Overfitting d) Overparameterization 3. Which institution below uses contrarian investment strategies with more ease? a) Mutual funds b) Pension funds c) Hedge funds d) Banks 4. Which one of the following is not a reason why herd behavior happens? a) Because the computer models used by different traders are similar. b) Because all FIs are regulated in the same way. c) Because of the natural tendency of traders. d) Because traders focus on long-term strategies instead of focusing on short-term strategies. 5. Which one of the following is not true about liquidity black holes? a) One example of a liquidity black hole is the current financial crisis in US. b) One of the reasons why liquidity black holes happen is the herd behavior of investors. c) Liquidity black hole is the risk that liquidity in a particular market will dry up completely because everyone wants to buy and no-one wants to sell. d) When there’s a liquidity black hole, the bid-ask spread decreases. 6. One way to deal with model risk is to use multiple models and get a models’ average. a) True. b) False. 7. Hendry’s ‘General to Simple’ approach says that the simpler the model, the better it is. 1
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a) True. b) False. 8. Which one of the following should come last when there’s a liquidity problem in a financial institution? a) Liquidating assets b) Borrowing funds from other FIs c) Borrowing funds from the Fed d) Try to attract new deposits 9. Which one of the following is more of a problem when we use a liability management strategy rather than when we use an asset management strategy to deal with liquidity problems? a) Opportunity costs b) Transaction costs c) Volatility of interest rates d) Forgoing higher returns on other assets 10. Which one of the following is used to measure a bank’s liquidity exposure? a) Calculating the net liquidity position daily. b) Maturity ladder approach. c) Making peer group ratio comparisons. d) Calculating the financing requirement.
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Fin_353-Final - Fin 353Final Exam May 19, 2009 1. Model...

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