EXAMINATION

Code:02

Instructions to students:

1. Closed/Opened book examination: Opened book examination

2. Answer are to be written in the answer provided
3. Students are NOT permitted to retain this examination paper

This exam paper contains 2 pages, including the cover page.

 1. A portfolio of $600,000 is composed of 2 assets:
- A stock whose expected return is 15% with a standard deviation of 25%
- A bond whose expected annual return is 8% with a standard deviation of 15%.
The investor puts 40% in the stock
a. Calculate the VaR of each asset
b. What is the expected annual return, standard deviation and 95% VaR of the portfolio
assuming a correlation of - 0.4. To reduce the VaR of the portfolio, what should the
investor do?
c. If the correlation of return of two assets decreases to 1, what happens to VaR? Explain
2. Consider the Balance Sheet of a bank as below:

Cash 10 Overnight Repos 70

1-month, 5% Treasury bill 75 3-month, 6.5% deposit 60

2-year, 6.8% Treasury note 50 1.5-year, 7.5% deposit 50

2-year, 9.3% loans (interest rate 80 Equity 35

reset every 3 months)

Total assets 215 Total Liability + Equity 215

a. Calculating 30-day, 91-day, 1-year, 2-year repricing gaps.

b. How does Net interest income (NII) change due to 0.5% rise in all 0-1year interest rates.
c. How can the Bank hedge against interest rate risk?
3. Make comments about the statement: “currencies trading is a kind of zero-sum game.
Therefore, there is no need of exchange rate risk management”.
4. Describe some pros and cons of loan classification by qualitative and quantitative
methods. Why some Vietnamese banks decide to use both qualitative and quantitative
methods for classifying loans.
5. Choose the most suitable answer and briefly explain:
5.1 Which derivatives is NOT used for payment purpose?
a. Spot c. Non deliverable forwards
b. American Options d. European options
5.2 Which kind of derivatives is typically used for hedging?
a. Futures c. Swaps
b. Forwards d. Spots