Exam Feedback FRM Part 2 (November 2014) Exam Feedback

[Roshan Ramdas]

4)I think we are asked to use Basel 3 and i think we should use 10.5% of RWA instead of 8%in Basel 2.
12)I think you are correct...even i selected risk concentrations earlier but later changed the answer..a silly mistake.
13)I think in this question the options were like 1)new ipo had shares traded 10% premium....2)Hedge fund is closely guarded by portfolio managers etc..
18)We are on same page here.
20)We are on same page.
21)RR was 40%...PD i forgot
30)Bank will take one way CSA with hedgefund since bank is superior and would love to take advantage.,..there were 5 questions on CSA..i don't remember them all.
40)I did a mistake here ..i selected the option with non parallel shift..i think you are correct..
41)I think answer will be. the one in which Solvency looks at firm wide but basel does not..

The CSA's were all really difficult.

As for the Solvency / Basel,.....I've attached a small screenshot from the main GARP doc that seems to be supporting my earlier point,.....but I am may have misread the point and could be wrong.

 

[monumonumental]

The CSA's were all really difficult.

As for the Solvency / Basel,.....I've attached a small screenshot from the main GARP doc that seems to be supporting my earlier point,.....but I am may have misread the point and could be wrong.

I don't think i will make it this time...ie i may fail..

 

[Ank]

For this "Solvency vs Basel..i think i got it correct....I selected the one which stated VAR came with varying confidence levels for different risk classes and Solvency had a single measure for company as whole ?"

I also checked this option. its option A for me i guess

 

[Ank]

What you ppl checked for Bank having branches in North south west part. I choose option where centralized database and same data taxonomy was option

 

[Roshan Ramdas]

I selected XYZ will pay big loss onetime........ option

Why would XYZ post a big loss ?
I was trying to built some kind of a strange logic for this one & here it is.
I am not very familiar with how the bid ask prices are quoted,....but I assume that it is going to be the CDS premium.
Lets assume that XYZ as a protection buyer is paying $100 a year. We are initially using a model that averages bid prices (buy prices). We then take up a decision to move on to a model that uses the midpoint of a bid ask spread. The ask prices are logically higher than the bid & so bid ask mid point (I think) should be logically higher than the bid price average themselves.
So to me, we are effectively marking a CDS position to a higher price.
As a protection buyer,....if the price to which my position is being marked moves up from X to Y, that would have the affect of increasing my profit / reducing my loss.
As a protection seller,....if the price to which my position is being marked moves up from X to Y, that would have the affect of increasing my loss / reducing my profit.

 

[Roshan Ramdas]

What you ppl checked for Bank having branches in North south west part. I choose option where centralized database and same data taxonomy was option

This is what I selected.

 

[Ank]

Why would XYZ post a big loss ?
I was trying to built some kind of a strange logic for this one & here it is.
I am not very familiar with how the bid ask prices are quoted,....but I assume that it is going to be the CDS premium.
Lets assume that XYZ as a protection buyer is paying $100 a year. We are initially using a model that averages bid prices (buy prices). We then take up a decision to move on to a model that uses the midpoint of a bid ask spread. The ask prices are logically higher than the bid & so bid ask mid point (I think) should be logically higher than the bid price average themselves.
So to me, we are effectively marking a CDS position to a higher price.
As a protection buyer,....if the price to which my position is being marked moves up from X to Y, that would have the affect of increasing my profit / reducing my loss.
As a protection seller,....if the price to which my position is being marked moves up from X to Y, that would have the affect of increasing my loss / reducing my profit.

Fwiw bid price is less then ask price. So when rm goes for mid price then it will increase the amount which they have to pay as they are on the paying side of credit protection "already paid 20,000" . So it will post losses for then, but don't understand about logic of regulators showing up there as using bid-ask mid price is okay with them. I think they might be posting big amount of losses in there books

 

[monumonumental]

is 50/80 safe?

 

[Ank]

is 50/80 safe?

which Q is this?

 

[Roshan Ramdas]

Fwiw bid price is less then ask price. So when rm goes for mid price then it will increase the amount which they have to pay as they are on the paying side of credit protection "already paid 20,000" . So it will post losses for then, but don't understand about logic of regulators showing up there as using bid-ask mid price is okay with them. I think they might be posting big amount of losses in there books

My understanding is that the amount you pay in the form of CDS premium is fixed through the life of the contract,......it is what the protection buyer and seller agree upon at the time of inception. The next aspect is marking the position to markets which could result in a profit / loss depending upon the end of day price that you use. This is what I understood from the JPM (traders resorting to mismarking their positions). Anyway,....this is all very superficial at the moment and I could very well be wrong.

 

[monumonumental]

which Q is this?

lol....i mean 50correct out of 80 questions

 

[Ank]

lol....i mean 50correct out of 80 questions

You think 50/80 will pass?

 

[monumonumental]

You think 50/80 will pass?

i have the same doubt..

 

[Roshan Ramdas]

4)I think we are asked to use Basel 3 and i think we should use 10.5% of RWA instead of 8%in Basel 2.
12)I think you are correct...even i selected risk concentrations earlier but later changed the answer..a silly mistake.
13)I think in this question the options were like 1)new ipo had shares traded 10% premium....2)Hedge fund is closely guarded by portfolio managers etc..
18)We are on same page here.
20)We are on same page.
21)RR was 40%...PD i forgot
30)Bank will take one way CSA with hedgefund since bank is superior and would love to take advantage.,..there were 5 questions on CSA..i don't remember them all.
40)I did a mistake here ..i selected the option with non parallel shift..i think you are correct..
41)I think answer will be. the one in which Solvency looks at firm wide but basel does not..

On question 4,.....the minimum requirement is still at 8% b/w Basel 2 and 3. The capital conservation buffer 2.5% introduced in Basel 3 is not a minimum in itself.
Nonetheless,....even if we assume that 10.5% is the way to go,....what change did you make to the numerator and / or denominator please ?
Just trying to understand how your formula was structured.

 

[monumonumental]

On question 4,.....the minimum requirement is still at 8% b/w Basel 2 and 3. The capital conservation buffer 2.5% introduced in Basel 3 is not a minimum in itself.
Nonetheless,....even if we assume that 10.5% is the way to go,....what change did you make to the numerator and / or denominator please ?
Just trying to understand how your formula was structured.

I think i got answer of 2.7 something and 2.944 was the closest option to my answer..

 

[Roshan Ramdas]

Guys,

How did you work out the below problem please ?

MBS 1 & 2 - Nominal & Z-spread difference.

Thank you

 

[Ank]

Guys,

How did you work out the below problem please ?

MBS 1 & 2 - Nominal & Z-spread difference.

Thank you

I put MBS 2 and Yield curve 2

 

[monumonumental]

Guys,

How did you work out the below problem please ?

"I've remembered a question about the difference between the Nominal & Z-spread - I think I got Yield Curve 2 & MBS 1"

Thank you

I don't remember exact steps..but i think i used common equity+addaitional equity/RWA...
I remember a question too....I think it was which has biggest intrest rate risk or something and i selected MBS and certificates of deposit..

 

[monumonumental]

I put MBS 2 and Yield curve 2

Cannot remember this question.

 

[Roshan Ramdas]

I don't remember exact steps..but i think i used common equity+addaitional equity/RWA...
I remember a question too....I think it was which has biggest intrest rate risk or something and i selected MBS and certificates of deposit..

On your second question
MBS - Interest Rate Risk (is correct)
I don't think that a Certificate of Deposit poses liquidity risk to a bank and selected the other option. COD's come with fixed maturities allowing banks to plan their liquidity more effectively. I think it was the other option & I don't remember the name of the instrument