FRM lec 11

Question 1

is the risk of an adverse movement in market prices that is applied across a range of assets.

Answer 1

General market risk or systematic risk

Question 2

is the risk of an adverse movement in the price of an individual asset due to factors that only apply to the security or issuer and is not related to the general movement of the markets

Answer 2

Specific risk

Question 3

Is the potential for loss due to an adverse change in foreign exchange rates, and applies to all exchange-related products whose positions are valued in a currency that differs from the bank’s reporting currency.

Answer 3

Foreign exchange risk

Question 4

Is the potential loss due to adverse changes in interest rates. Note that the value of fixed income instruments will change if either the creditworthiness of the borrower changes or the risk-free interest rate changes. The potential change to the creditworthiness of the borrower is the credit risk associated with the loan. The potential change to the interest rate is the market associated with the loan

Answer 4

Interest rate risk.

Question 5

Is the potential loss due to an adverse change in the price of stocks and applies to all instruments that use equity prices as part of their valuation – ex.Derivative products

Answer 5

Equity risk.

Question 6

Is the potential loss from an adverse change in commodity prices. This applies to all commodity positions and any derivative commodity positions such as futures contracts

Answer 6

Commodity risk

Question 7

Is the risk that a long or short position in a credit-risky instrument can lead to a loss due to adverse market prices for that credit risk. This risk type applies to cash instruments, such as loans and bonds, as well as to derivatives instruments, such as credit default swaps.

Answer 7

Credit price risk