GARP GARP Certifications 2016-FRR Questions & Answers

• Question 91:

  Which one of the four following statements about drawdowns is correct?

  A. Drawdown calculates significant losses in a particular business or a book.

  B. Drawdown estimates the effect on bank's liabilities when the bank's credit rating is cut.

  C. Drawdown quantifies the peak-to-trough decline of an investment over a known time period.

  D. Drawdown measures the aggregate decline in market values of assets and positions due to a shock.

  Correct Answer: C

• Question 92:

  Suppose that a regulator deems all corporate debt to have the same risk level. Which of the following behavior of banks would be an example of regulatory arbitrage?

  A. Banks increase their exposure to corporate debt.

  B. Banks decrease their exposure to corporate debt.

  C. Banks shift their exposure to more risky corporate debt.

  D. Banks shift their exposure to less risky corporate debt.

  Correct Answer: C

• Question 93:

  To ensure good risk management which of the following should be true about the CRO role and function?

  A. The CRO should receive compensation that is directly determined by the profit of the trading desk.

  B. The CRO should report to the CEO or the Board of Directors.

  C. The CRO should not be involved with the setting of risk limits.

  D. To ensure efficient flow of information the CRO should not be independent of business units.

  Correct Answer: B

• Question 94:

  BetaFin has decided to use the hybrid RCSA approach because it believes that it fits its operational framework. Which of the following could be reasons to use the hybrid RCSA method?

  I. BetaFin has previously created series of RCSA workshops, and the results of these workshops can be used to design the questionnaires.

  II. BetaFin believes that using the questionnaire approach should be more useful.

  III. BetaFin had used the questionnaire approach successfully for certain businesses and the workshop approach for others.

  IV.

  BetaFin had already implemented a sophisticated RCSA IT-system.

  A.

  I and II

  B.

  I and III

  C.

  III and IV

  D.

  II, III, and IV

  Correct Answer: B

• Question 95:

  Company A needs to provide a risk probability/frequency score for its RCSA program. If the event is likely to happen once in 2 years, then the frequency score will be equal to:

  A. 0.2

  B. 0.5

  C. 1

  D. 2

  Correct Answer: B

• Question 96:

  DeltaFin wants to develop a control scoring method for its RCSA program. Which of the following statements regarding scoring methods are correct?

  I. DeltaFin can develop a control scoring method that assesses both the design and the performance of the control.

  II. DeltaFin can combine the design and performance scores for each control to produce an overall control effectiveness score.

  III. DeltaFin can use the control performance scores to compute an overall risk severity score.

  IV.

  DeltaFin can determine its own appropriate control scoring method.

  A.

  I only

  B.

  II and III

  C.

  I, II and IV

  D.

  II, III, and IV

  Correct Answer: C

• Question 97:

  Which statements correctly describe the features of using subscription databases for operational loss data analysis?

  Subscription databases

  I. Provide central data repositories and benchmarking services to their members.

  II. Can provide insight into whether the losses in a firm reflect the usual losses in their industry.

  III. Assist with mapping the events to the appropriate business lines, risk categories and causes.

  IV.

  Reflect only events that are interesting to the press and are reported in the press.

  A.

  I and II

  B.

  II and III

  C.

  I, II and III

  D.

  II, III, and IV

  Correct Answer: B

• Question 98:

  AlphaBank's management is evaluating how changes in its business environment could materially impact risk categories. As a result, bank's management decides to implement the structure, which facilitates the discussion in an integrative context, spanning market, credit, and operational risk factors, and encourages transparency and communication between risk disciplines. Which one of the following four approaches should the management choose to achieve this strategic goal?

  A. Regulatory risk management approach

  B. Enterprise risk management approach

  C. Scenario-based risk management approach

  D. Taxonomy-based risk management approach

  Correct Answer: B

• Question 99:

  According to Basel II what constitutes Tier 2 capital?

  A. Debt that is not subordinated to equity and innovative capital products that would count as Tier 1 capital and excluding perpetual non-cumulative preference shares.

  B. Debt that is subordinate to equity.

  C. Equity capital and debt together.

  D. Core capital excluding undisclosed reserves and general reserves that the bank may make against its expected loan losses.

  Correct Answer: A

• Question 100:

  The data available to estimate the statistical distribution of bank losses is difficult to assemble for which of the following reasons?

  I. The needed data is vast in quantity.

  II. The data requires bringing together significantly different measures of risk.

  III.

  Some risks are difficult to quantify and hence the data might involve subjective elements.

  A.

  I, II

  B.

  I, III

  C.

  II, III

  D.

  I, II, III

  Correct Answer: C