GARP GARP Certifications 2016-FRR Questions & Answers

• Question 101:

  Which one of the following four statements correctly defines a typical carry trade?

  A. A bank borrows funds in a high-interest currency and places the funds in a long-term low volatility investment vehicle.

  B. A bank borrows funds in a high-interest currency and invests the funds into high-yield emerging market debt.

  C. A bank borrows funds in a low-interest currency and places the funds on deposit in a high-interest currency.

  D. A bank borrows funds in a low-interest currency, accumulates reserves, and lends in another low-interest currency.

  Correct Answer: C

• Question 102:

  The retail banking business of BankGamma has an expected P and L of $50 million and a VaR of $100 million. The bank seeks to diversify its revenue, and is considering the opportunity to acquire a credit card business with an expected P and L of $50 million and a VaR of $150 million. What will be the overall RAROC if the bank acquires the new business?

  A. 33.3%.

  B. 50%.

  C. 58%.

  D. 72%.

  Correct Answer: C

• Question 103:

  The operational risk policy should include:

  I. The firm's definition of risk

  II. The governance of operational risk including who owns it, what it owns, and how issues should be escalated

  III.

  The main activities and elements that are managed by the operational risk function

  A.

  I, II

  B.

  I, III

  C.

  II, III

  D.

  I, II, III

  Correct Answer: D

• Question 104:

  Which one of the following four attributes would likely help a trader using exchange-traded options to establish a leveraged position?

  A. Higher degrees of exposure at less cash cost

  B. Unlimited losses for long option positions

  C. Option positions have the same credit risks as a margined long forward.

  D. Option positions have the same cash risks as a margined short futures purchase.

  Correct Answer: A

• Question 105:

  Which of the following bank events could stress the bank's liquidity position?

  I. Maturing of bank debt

  II. Repurchase agreements

  III. Futures margins

  IV.

  Staff turnover

  A.

  I, II

  B.

  IV

  C.

  III, IV

  D.

  I, II and III

  Correct Answer: D

• Question 106:

  Which of the following would a bank resort to as a "lender of last resort" in the event of an extreme liquidity crisis?

  A. U.S treasury markets

  B. Discount window

  C. LIBOR markets

  D. Futures Markets

  Correct Answer: B

• Question 107:

  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

  Correct Answer: D

• Question 108:

  Which one of the following four factors typically drives the pricing of wholesale products?

  A. Marketing considerations

  B. Prevailing market price

  C. Long-term competitiveness

  D. Overall risk exposure

  Correct Answer: B

• Question 109:

  Normally, commercial banking can be viewed as a fixed income carry trade since

  A. Short-term floating-rate deposits are used to fund long-term fixed rate loans.

  B. Short-term fixed rate deposits are used to fund long-term floating rate loans.

  C. Short-term fixed-rate deposits are used to fund short-term floating rate loans.

  D. Short-term floating-rate deposits are used to fund short-term floating rate loans.

  Correct Answer: A

• Question 110:

  Which of the following bank events could stress the bank's liquidity position?

  I. Obligations to fund assets like mortgages

  II. Unusually large depositor withdrawals

  III. Counterparty collateral calls

  IV.

  Nonperforming assets

  A.

  I, II

  B.

  IV

  C.

  III, IV

  D.

  I, II, III and IV

  Correct Answer: D