Repurchase Agreements and Financing
After completing this reading, you should be able to: Describe the mechanics of repurchase agreements (repos) and calculate the settlement for a repo transaction. Discuss common motivations for entering into repos, including their use in cash management and liquidity management….
Credit Scoring and Retail Credit Risk Management
After completing this reading, you should be able to: Analyze the credit risks and other risks generated by retail banking. Explain the differences between retail credit risk and corporate credit risk. Discuss the “dark side” of retail credit risk and…
Pricing Financial Forwards and Futures
After completing this reading, you should be able to: Define and describe financial assets. Define short-selling and calculate the net profit of a short sale of a dividend-paying stock. Describe the differences between forward and futures contracts and explain the…
Risk Management, Governance, Culture, and Risk taking in Banks
After completing this reading, you should be able to: Assess methods that banks can use to determine their optimal level of risk exposure, and explain how the optimal level of risk can differ across banks. Describe implications for a bank…
Risk Management Failures – What Are They and When Do They Happen?
After completing this reading, you should be able to: Explain how a large financial loss may not necessarily be evidence of a risk management failure. Analyze and identify instances of risk management failure. Explain how risk management failures can arise…
Applying the CAPM to Performance Measurement
After completing this reading, you should be able to: Calculate, compare, and evaluate the Treynor measure, the Sharpe measure, and Jensen’s alpha. Compute and interpret tracking error, the information ratio, and the Sortino ratio. Exam tip: Be sure to understand…
Exam P Syllabus – Learning Outcomes
General Probability 1.a – Define set functions, Venn diagrams, sample space, and events. Define probability as a set function on a collection of events and state the basic axioms of probability. 1.b – Calculate probabilities using addition and multiplication rules. 1.c – Define…
State and apply the Central Limit Theorem
For this learning objective, a certain knowledge of the normal distribution and knowing how to use the Z-table is assumed. The central limit theorem is of the most important results in the probability theory. It states that the sum of…
Calculate probabilities for linear combinations of independent normal random variables
Definition: Let \(X_1, X_2,\ldots,X_n\) be random variables and let \(c_1, c_2,\ldots, c_n\) be constants. Then, $$ Y=c_1X_1+c_2X_2+\ldots+c_nX_n $$ is a linear combination of \(X_1, X_2,\ldots, X_n\). In this reading, however, we will only base our discussion on the linear combinations…
Determine the distribution of a transformation of jointly distributed random variables
Transformation for Bivariate Discrete Random Variables Let \(X_1\) and \(X_2\) be a discrete random variables with joint probability mass function \(f_{X_1,X_2}(x_1,x_2)\) defined on a two dimensional set \(A\). Define the following functions: $$ y_1 =g_1 (x_1, x_2)$$ and $$y_2 =g_2(x_1,x_2)$$…
