1.All of the following describe limitations of using option-adjusted spreads (OASs) for valuing mortgage-backed securities (MBSs) except:
　　?A. modeling risk is associated with Monte Carlo simulations.
　　B. model requires making adjustments to interest rate paths.
　　C. model assumes a dynamic OAS over time.
　　D. prepayment model influences the model valuation.
　　2.If a firm has counterparty exposure by ways of several derivative contact， the firm's potential future exposure (PFE) can be reduced by each of the following except:
　　A. Compression and tear-up operations
　　B. Co11ateralization of residual net exposures
　　C. Offsetting positions with bilateral contracts with new counterparties
　　D. Netting of bilateral positions
　　Answer:
　　1.C
　　When using OAS to value MBS, the model assumes a constant OAS over time. This is problematic if there is a term structure to the OAS because this is not reflected in the Monte Carlo process.
　　2.A
　　Cross-product netting works with derivative transactions that can have both a positive and a negative value. In the case of a default by either counterparty, a netting agreement will allow transactions to be aggregated and reduce the risk for both parties. Collateralization occurs in the
　　form of a collateral agreement between two counterparties that reduces exposure by requiring sufficient collateral to be posted by either counterparty to support the net exposure between them.
　　Diversification of counterparty risk limits credit exposure to any given counterparty consistent with the default probability ofthe counterparty. When an institution trades with more counterparties, there is much less exposure to the failure of any given counterparty.