GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 101:

  Gamma Bank has $300 million in loans and $200 million in deposits. If the modified duration of the loans is estimated to be 2, and the modified duration of the deposits is estimated to be 1, then the change in Gamma Bank's equity value per 1% change in yield will be:

  A. -$1 million
  B. -$2 million
  C. -$3 million
  D. -$4 million
  D. -$4 million

• Question 102:

  A risk manager is considering how to best quantify option price dynamics using mathematical option pricing models. Which of the following variables would most likely serve as an input in these models?

  I. Implicit parameter estimate based on observed market prices

  II. Estimates of sensitivity of option prices to parameter changes

  III.

  Theoretical option determination based on assumptions

  A. I, III
  B. II
  C. II, III
  D. I, II, III
  I. Implicit parameter estimate based on observed market prices II. Estimates of sensitivity of option prices to parameter changes III. Theoretical option determination based on assumptions
  D. I, II, III

• Question 103:

  Gamma Bank is active in loan underwriting and securitization business, and given its collective credit exposure, it will be typically most interested in the following types of portfolio credit risk:

  I. Expected loss

  II. Duration

  III. Unexpected loss

  IV.

  Factor sensitivities

  A. I
  B. II
  C. I, III
  D. I, III, IV
  I. Expected loss II. Duration III. Unexpected loss IV. Factor sensitivities
  D. I, III, IV

• Question 104:

  What is the role of market risk management function within a bank?

  I. Control and minimize the risks the bank should take.

  II. Establish a comprehensive market risk policy framework.

  III. Define, approve and monitor risk limits.

  IV.

  Perform stress tests and other qualitative risk assessments.

  A. I and III
  B. II and IV
  C. I, II and III
  D. II, III, and IV
  I. Control and minimize the risks the bank should take. II. Establish a comprehensive market risk policy framework. III. Define, approve and monitor risk limits. IV. Perform stress tests and other qualitative risk assessments.
  D. II, III, and IV

• Question 105:

  Which of the following statements regarding CDO-squared is correct?

  I. CDO-squared use other CDOs and CMOs as collateral.

  II. Risk assessment of CDO-squared is almost impossible due to their complexity.

  III.

  CDO-squared have lower credit risk than CMOs but higher than CDOs.

  A. I only
  B. I and II
  C. II and III
  D. I, II, and III
  I. CDO-squared use other CDOs and CMOs as collateral. II. Risk assessment of CDO-squared is almost impossible due to their complexity. III. CDO-squared have lower credit risk than CMOs but higher than CDOs.
  B. I and II

• Question 106:

  Which one of the following four statements regarding commodity exchanges is INCORRECT?

  A. Banks have no natural direct exposure to commodities.
  B. Banks trade in OTC contracts primarily to serve clients and facilitate client hedging and lending.
  C. Customers rarely trade physical commodities with banks.
  D. Commodity markets are mot liquid than debt markets.
  D. Commodity markets are mot liquid than debt markets.

• Question 107:

  The skewness of ABC company's stock returns equal -1.5. What is the correct interpretation of this?

  A. It indicates higher relative probability of negative returns compared to estimates derived from a normal distribution.
  B. It indicates that the returns are indeed normally distributed.
  C. It indicates lower probability of extreme negative events compared to the normal distribution.
  D. It indicates higher relative probability of extreme events than non-extreme events compared to estimates from a normal distribution.
  A. It indicates higher relative probability of negative returns compared to estimates derived from a normal distribution.

• Question 108:

  In the United States, during the second quarter of 2009, transactions in foreign exchange derivative contracts comprised approximately what proportion of all types of derivative transactions between financial institutions?

  A. 2%
  B. 7%
  C. 25%
  D. 43%
  B. 7%

• Question 109:

  An organization's enterprise risk management framework defines its risk profile and typically reflects the organization's

  I. Market and credit risks

  II. Operational and liquidity risks

  III. Strategic and geopolitical risks

  IV.

  Structural developments and industry position

  A. I, II
  B. I, IV
  C. II, III
  D. I, II, III
  I. Market and credit risks II. Operational and liquidity risks III. Strategic and geopolitical risks IV. Structural developments and industry position
  D. I, II, III

• Question 110:

  To protect the oranges harvest price level, a farmer needs to take a hedge position. Provided that he produces the amount he hedged, which one of the following four strategies will allow the farmer to accomplish his goal?

  A. Going short on oranges futures contracts
  B. Going long on oranges futures contacts
  C. Entering into a customized forward contract with the bank
  D. Negotiating a credit line facility
  A. Going short on oranges futures contracts