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I pretty sure this is the right answer. Decreasing term structure means long-run vol is lower than current vol. I was tried to remember what is term structure of vol and then decide that it does not involve strike prices.

You are right. Among the answer is: If term structure is not flat then the GARCH model is wrong or something like that. But it is not true.

5. I remember a table with par rate and discount factor. I was eager to just use the discount factor to calculate the spot rate. But I realize those discount factor are just calculated from the par rate given. So I think the spot rate should be calculated from the par rate. I don't have enough...

I can't recall that. But for unexpected loss, bank should use it for economic capital. Expected loss are already accounted in pricing of product. Some of the question I remember and not very sure of the answer. 1. For a pension plan, what is the effect of rising interest rate when the assets...