Exam Feedback May 2017 Part 2 Exam Feedback

[KA1991]

I agree with most, not sure about MVAR and BCM planning. I think I put they had to look at all external audits of the vendor

Yeah, that would be part of due diligence, however to manage operational risk - I read a point somewhere that says ensuring the planning is done for VENDORS as well.

 

[KA1991]

As MVAR = VAR Portfolio/Total Assets Portfolio * Beta and VAR P/Total Assets is constant for all three portfolios, I think Beta equals MVAR, so expected return over Beta all day long in my humble view.

Agreed. With missing portfolio VAR and Value - BETA was equal to MVAR.

 

[KA1991]

Did anyone select Treynor risk adjusted measures - considering the portfolio was diversified and was required for comparison.

 

[Roddefeller]

Did anyone select Treynor risk adjusted measures - considering the portfolio was diversified and was required for comparison.

Makes a lot of sense to me.

 

[bpdulog]

Yeah, that would be part of due diligence, however to manage operational risk - I read a point somewhere that says ensuring the planning is done for VENDORS as well.

Yeah but I think it said that the company should write the plan for the vendor, which doesn't make sense? The vendor should write their own plan

 

[KA1991]

Yeah but I think it said that the company should write the plan for the vendor, which doesn't make sense? The vendor should write their own plan

Yeah - I had the same thought! But found this option demanding.
Haha! Only think I can do right now is celebrate how I cleared the Level 1 looking at its difficulty in comparison to Level 2.

 

[Longpips]

Reasons why i think Pt. 2 exam has higher pass rate that Pt. 1:

1. First, the exam takers for Pt. 2 have already passed Pt. 1, so they've been "filtered" and screened.
2. Pt 2 has less questions (80 vs 100). This gives the candidates more time per question.
3. There are more repeat takers. To understand this point, look at Pt 1 pass rate of 45%. This means 55% failed. Some of those who failed Pt 1 probably will give up and not repeat. However, if you fail Pt 2, most likely you will repeat , i.e., why give up now when you only have one more to pass? So, given Pt. 2's pass rate of 55%, those 45% who failed, perhaps close to 100% would repeat.

Thus, out of the pool of Pt 2 takers, 2 out of 5 are repeat takers. They're probably prepared "harder" and has higher pass rate.

Now, here's my observation on item 2 above. The fact that Pt 2 has less questions (80) leaves GARP to add more in the future. I don't see why they can't increase this to 100 to cover more topics in depth. If that happens then Pt 2 pass rate will go down.

 

[bpdulog]

If you are given LGD and EAD for 2 year timeframe and annual PD rate, how do you calculate expected loss?

 

[farahm]

Collateral threshold amount

What did you guys choose for this question?
Did I have to include minimal transaction amount to calculate this?

No the min tsf amount is never included. Its just the minimum one can transfer in a transaction.

 

[KA1991]

If you are given LGD and EAD for 2 year timeframe and annual PD rate, how do you calculate expected loss?

Hello - I really don't know. I did the straightforward EL calculation with LGDxPDxExposure.
As far as I remember there was no other detail available to get another figure.

 

[farahm]

Hello - I really don't know. I did the straightforward EL calculation with LGDxPDxExposure.
As far as I remember there was no other detail available to get another figure.

I think I calculated PD for 2 years and selected one of the choices given..I hope that's right!

 

[farahm]

Volatility smile in case of price jumps.
This was a frown?

I chose the frown

 

[Part 2 Student]

There's a question on the highest exposure for four option positions:
1) Long gold (counterparty: gold producer)
2) Short oil (counterparty: airline)
3) Long banks / financials (counterparty: SIFI)
4) Short soybeans (counterparty: soybeans farmer)
Which one is correct?

 

[Srilakshmi]

There were 2 credit var questions. Anyone remember how to do them?

 

[tatiana.andronova]

There's a question on the highest exposure for four option positions:
1) Long gold (counterparty: gold producer)
2) Short oil (counterparty: airline)
3) Long banks / financials (counterparty: SIFI)
4) Short soybeans (counterparty: soybeans farmer)
Which one is correct?

I chose "the price of gold" will affect the exposure the most

 

[tatiana.andronova]

I think I calculated PD for 2 years and selected one of the choices given..I hope that's right!

I calculated PD for Year 1 (hazard rate) and PD for Year 2. Then derived EL for Year 1 & Year 2 and added them together since EL is linear and additive. I think the answer was $50.2MM.

 

[tatiana.andronova]

Did anyone select Treynor risk adjusted measures - considering the portfolio was diversified and was required for comparison.

I did.

 

[vistag]

Yeah but I think it said that the company should write the plan for the vendor, which doesn't make sense? The vendor should write their own plan

In my previous company,we used to review/modify/ advise on the contingency plan of the vendor to ensure his failure doesn't effect our operations. So although writing vendors plan is far fetched it is quite near by to in practical scenario where outsourced vendors plans are reviewed and changes suggested for betterment

 

[vistag]

I chose "the price of gold" will affect the exposure the most

Short soya beans is the answer i assume. If soya beans prices fall down the exposure increases (although in profit) but farmer is impacted badly and which creates a Higher probability of default which overall leads to wrong way risk.

 

[vistag]

I calculated PD for Year 1 (hazard rate) and PD for Year 2. Then derived EL for Year 1 & Year 2 and added them together since EL is linear and additive. I think the answer was $50.2MM.

Yes i used the same approach,don't remember the answer though. EL is direct additive