1.1 When considering VaR from a portfolio with FX risk, one must be cautious because:

A. The correlation between FX and the portfolio can materialize and increase VaR B. FX risk cannot be fully hedged C. FX risk is very high and will certainly increase the VaR of the portfolio

D. One must consider the diversified portfolio component plus the FX component

1.2 What is the most correct answer for the question why should a long-only investor hedge his portfolio against market risk?

A. Because he thinks the market will fall during the time of the hedge

B. Because he wants to be beta neutral

C. Because he just wants to get the idiosyncratic risk of the portfolio constituents

D. All are correct

1.3The regular formula to calculate the parametric VaR can't be applied directly when computing the VaR for bonds. The reason might be: A. Bond prices converge to par, mitigating volatility B. Bond maturities are always changing and therefore past returns are never truly comparable

C. All are correct D. None are correct

1.4. The difference between the diversified vs undiversified VaR of bonds of the same issuer is usually relatively low. The main reason behind this relationship, is the fact that correlation between rates of the same issuer is high. Select one:

True

False

1.5. To implement the hedging of the market risk one can use several derivatives. When choosing between futures and ETFs:

A. Futures have the disadvantage of having a margin account B. ETFs have more liquidity and have smaller bid ask spread C. ETFs are a better solution because they track the underlying better

D. Futures are less costly in terms of cash requirements