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FRM Part II · FRM Exam Part II · Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk)

A fund holds USD 200 million of emerging market bonds. Using a stress calibrated so that a geopolitical shock raises spreads by 150 bps on bonds with a spread duration of 5, what is the approximate mark-to-market loss?

The approximate loss is USD 15 million, calculated as spread duration 5 times the 1.5 percent spread widening times the USD 200 million portfolio value, which gives a 7.5 percent price decline on the holdings.

  1. AUSD 1.5 million
  2. BUSD 7.5 million
  3. CUSD 15 millionCorrect
  4. DUSD 30 million

Explanation

Loss ≈ spread duration × spread change × value = 5 × 0.015 × 200m = 15m. Using 7.5% of 100m or ignoring duration gives other options; 1.5m ignores duration and scale incorrectly, 30m doubles the result.

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