GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 1:

  A proprietary trading desk for a large bank hedges an Arab light OTC forward position with Brent crude oil forwards. The trading desk benefits from using the most liquid OTC market to hedge, the market for the Brent crude, but hedging its using the Brent contract, exposes itself to the following type of risk:

  A. Basis risk
  B. Term risk
  C. Correlation risk
  D. Seasonality risk
  A. Basis risk

• Question 2:

  What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?

  A. The long term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.
  B. The long term rates must rise enough to get some borrowers to borrow long-term and some lenders to lend short-term.
  C. The short term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.
  D. The short term rates must fall enough to get some borrowers to borrow long-term and some lenders to lend short-term.
  A. The long term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

• Question 3:

  Which one of the following four statements correctly defines a non-exotic call option?

  A. A call option gives the call option buyer the obligation, but not the right, to buy the underlying instrument at a known price in the future.
  B. A call option gives the call option buyer the obligation, but not the right, to sell the underlying instrument at a known price in the future
  C. A call option gives the call option buyer the right, but not the obligation, to buy the underlying instrument at a known price in the future
  D. A call option gives the call option buyer the right, but not the obligation, to sell the underlying instrument at a known price in the future
  C. A call option gives the call option buyer the right, but not the obligation, to buy the underlying instrument at a known price in the future

• Question 4:

  SigmaBank has many branches that offer the same products and services. Which one of the four following statement presents an advantage of using RCSA questionnaire approach in the SigmaBank's operational risk framework?

  A. The questionnaires are usually sent to specific nominated parties for completion.
  B. This approach ensures that there has been full participation in the scoring, rather than a single view.
  C. It provides a forum for an in-depth discussion of the operational risks in the firm.
  D. The results can be collected electronically and the responses compared to identify themes, trends and areas of potential control weakness or elevated risk.
  D. The results can be collected electronically and the responses compared to identify themes, trends and areas of potential control weakness or elevated risk.

• Question 5:

  A financial analyst is trying to distinguish credit risk from market risk. A $100 loan collateralized with $200 in stock has limited ___, but an uncollateralized obligation issued by a large bank to pay an amount linked to the long-term performance of the Nikkei 225 Index that measures the performance of the leading Japanese stocks on the Tokyo Stock Exchange likely has more ___ than ___.

  A. Legal risk; market risk; credit risk
  B. Market risk; market risk; credit risk
  C. Market risk; credit risk; market risk
  D. Credit risk, legal risk; market risk
  B. Market risk; market risk; credit risk

• Question 6:

  Which one of the following four statements correctly defines credit risk?

  A. Credit risk is the risk that complements market and liquidity risks.
  B. Credit risk is a form of performance risk in contractual relationship.
  C. Credit risk is the risk arising from execution of a company's strategy.
  D. Credit risk is the risk that summarizes the exposures a company or firm assumes when it attempts to operate within a given field or industry.
  B. Credit risk is a form of performance risk in contractual relationship.

• Question 7:

  Which one of the four following statements about a minimal loss threshold in operational loss data collection is incorrect?

  A. A company can have differing operational loss data collection and reporting thresholds for different departments.
  B. The operational loss data collection program has to capture all losses regardless of their size.
  C. Setting an operational loss data collection threshold depends on the risk appetite of the firm and regulatory requirements it needs to meet.
  D. The operational loss data collection program must include all material losses that are above minimal gross loss threshold.
  B. The operational loss data collection program has to capture all losses regardless of their size.

• Question 8:

  Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's expected loss be?

  A. $500
  B. $750
  C. $1,000
  D. $1,300
  A. $500

• Question 9:

  From the bank's point of view, repricing the retail debt portfolio will introduce risks of fluctuations in:

  I. Duration

  II. Loss given default

  III. Interest rates

  IV.

  Bank spreads

  A. I
  B. II
  C. I, II
  D. III, IV
  I. Duration II. Loss given default III. Interest rates IV. Bank spreads
  D. III, IV

• Question 10:

  From a risk point of view, which of the following factors will generally lead to the fluctuation of equity values with industry P/E levels and a company's individual earnings?

  I. Sales

  II. Cost management

  III. Commercial success of the company

  IV.

  Market sentiment

  A. I, II
  B. II, IV
  C. III, IV
  D. I, II, III
  I. Sales II. Cost management III. Commercial success of the company IV. Market sentiment
  D. I, II, III