GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 121:

  Which of the following statements describes a bank's reasons to set risk limits?

  I. To control and minimize a bank's current risk exposure.

  II. To predict future risks.

  III. To allocate risks to business units.

  IV.

  To keep risk within tolerance levels.

  A. I and II
  B. III and IV
  C. I, II, and III
  D. I, III, and IV
  I. To control and minimize a bank's current risk exposure. II. To predict future risks. III. To allocate risks to business units. IV. To keep risk within tolerance levels.
  D. I, III, and IV

• Question 122:

  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
  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.
  B. I and III

• Question 123:

  By lowering the spread on lower credit quality borrowers, the bank will typically achieve all of the following outcomes EXCEPT:

  A. Aggressively courting of new business
  B. Lower probability of default
  C. Rapid growth
  D. Higher losses in case of default
  B. Lower probability of default

• Question 124:

  Which type of risk does a bank incur on loans that are in the "pipeline", i.e loans that are in the process of origination but not yet originated?

  A. Interest rate risk and credit risk
  B. Interest rate risk only
  C. Credit Risk only
  D. The bank does not incur any risk since the loan is not yet originated
  B. Interest rate risk only

• Question 125:

  Which of the following statements about the option gamma is correct? Gamma is the:

  I. Second derivative of the option value with respect to the volatility.

  II. Percentage change in option value per percentage change in the price of the underlying instrument.

  III. Second derivative of the value function with respect to the price of the underlying instrument.

  IV.

  Rate of change of the option delta with respect to changes in the underlying price.

  A. I only
  B. II and III
  C. III and IV
  D. II, III, and IV
  I. Second derivative of the option value with respect to the volatility. II. Percentage change in option value per percentage change in the price of the underlying instrument. III. Second derivative of the value function with respect to the price of the underlying instrument. IV. Rate of change of the option delta with respect to changes in the underlying price.
  C. III and IV

• Question 126:

  What is a common implicit assumption that is made when computing VaR using parametric methods?

  A. The expected returns are constant, but the standard deviation changes over time.
  B. The standard deviations of returns are constant, but the mean changes over time.
  C. The mean of and the standard deviations of returns are both constant.
  D. The mean and standard deviation of returns change periodically in response to crises.
  C. The mean of and the standard deviations of returns are both constant.

• Question 127:

  James manages a loans portfolio. He has to evaluate a large number of loans to choose which of them he will keep in the bank's books. Which one of the following four loans would he be most likely to sell to another bank?

  A. Loan to a major customer who is also a director and a large owner.
  B. Loan made to a highly risky borrower that is fully collateralized by the customer's deposits.
  C. Loan to a commercial customer with a good payment history and collateral.
  D. Loan to a borrower who has been delinquent previously, but now is performing as agreed.
  C. Loan to a commercial customer with a good payment history and collateral.

• Question 128:

  A risk analyst at EtaBank wants to estimate the risk exposure in a leveraged position in Collateralized Debt Obligations. These particular CDOs can be used in a repurchase transaction at a 20% haircut. If the VaR on a $100 unleveraged position is estimated to be $30, what is the VaR for the final, fully leveraged position?

  A. $20
  B. $50
  C. $100
  D. $150
  D. $150

• Question 129:

  A large multinational bank is concerned that their duration measures may not be accurate since the yield curve shifts are not parallel. Which of the following statements would be typically observed regarding variability of interest rates?

  A. Short-term rates are more variable than long-term rates.
  B. Short-term rates are less variable than long-term rates.
  C. Short-term rates are equally variable as long-term rates.
  D. Short-term rates and long-term rates always move in opposite directions.
  A. Short-term rates are more variable than long-term rates.

• Question 130:

  Returns on two assets show very strong positive linear relationship. Their correlation should be closest to which of the following choices?

  A. 15%
  B. 45%
  C. 60%
  D. 100%
  D. 100%