Most Recent AIWMI CCRA-L2 Exam Dumps

The extension of a guarantee by company A to company B can lower the rating of___________

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Following is information related banks:

Auckland Ltd is a public sector bank operating with about 120 branches across Indi

a. The bank has been in business since 1971 and has about 40% branches in rural areas and about 75% of all branches are in

Western India. On the basis of the size, Auckland Ltd will be ranked at number 31 amongst 40 banks in India.

Although top management has appointment period of 5 years, generally they retire on ach sieving age of 60 years with an average tenure of only 2 years at the top job.

Profit and Loss Account

Balance Sheet

The rating wise break-up of assets for FY11 is as follows:

Computer risk weighted assets for Auckland Ltd for FY11:

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The most important metric for a bank is the Net Interest Income (NII) which is the difference

between____income and____expense.

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Proportion of fee based income is examined as the same is an _____ efficient source of bank's profitability.

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Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior fixed income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak and following are the answers to his questions.

Question 1: Tell something about Option Adjusted Spread

Adam: OAS is applicable only to bond which do not have any options attached to it. It is for the plain bonds.

Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also reflects prepayment risk over and above the benchmark.

Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS is difference

between in the Z spread and price of a call option for a callable bond.

Deepark: For callable bond OAS will be lower than Z Spread.

Question 2: This is a spread that must be added to the benchmark zero rate curve in a parallel shift so that the sum of the risky bond's discounted cash flows equals its current market price. Which Spread I am talking about?

Adam: Z Spread

Balkrishna: Nominal Spread

Catherine: Option Adjusted Spread

Deepark: Asset Swap Spread

Question 3: What do you know about Interpolated spread and yield spread?Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury securities.

Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity mismatch,

which leads to error if the yield curve is not flat and the benchmark security changes over time, leading to inconsistency.

Catherine: Interpolated spread takes account the shape of the benchmark yield curve and therefore better than yield spread.

Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at YTM itself.

Then Satish gave following information related to the benchmark YTMs:

Which of the modified statement of Balkrishna will be a correct statement?

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