GARP GARP Certifications 2016-FRR Questions & Answers

• Question 121:

  Which of the following statements depicts a difference between funding liquidity risks and trading liquidity risks?

  A. Funding liquidity risks are associated with how fast prices move in the market while trading liquidity risks originate out of bank trades.

  B. Funding liquidity risks are concerned with the ability of the bank to fund deposits withdrawals while trading liquidity risks are concerned with the change in bid-offer spreads of asset values.

  C. Funding liquidity risks are short term risks while trading liquidity risks are longer term risks.

  D. Funding liquidity risks are associated only with the bank assets while trading liquidity risks are associated with both assets and liabilities of the bank.

  Correct Answer: B

• Question 122:

  What is the order in which creditors and shareholders get repaid in the event of a bank liquidation?

  A. Depositors, shareholders, debt holders.

  B. Debt holders, depositors, shareholders.

  C. Depositors, debt holders, shareholders.

  D. Depositors, shareholders, depositors.

  Correct Answer: C

• Question 123:

  All of the following factors generally explain the equity bid-offer spread in a market EXCEPT:

  A. Market volatility

  B. Interest rates

  C. Competition among market makers

  D. Market depth

  Correct Answer: B

• Question 124:

  Which one of the following four statements regarding the basic Net Interest Income model is INCORRECT?

  A. Assets and liabilities have the same interest rate sensitivities.

  B. Effective repricing date can be different than contractual repricing.

  C. The amount of intermediated funds can be a function of interest rate levels.

  D. Net interest income risk does not address the impact of changing interest rates on bank equity value.

  Correct Answer: A

• Question 125:

  Which of the following statements about endogenous and exogenous types of liquidity are accurate?

  I. Endogenous liquidity is the liquidity inherent in the bank's assets themselves.

  II. Exogenous liquidity is the liquidity provided by the bank's liquidity structure to fund its assets and maturing liabilities.

  III. Exogenous liquidity is the non-contractual and contingent capital supplied by investors to support the bank in times of liquidity stress.

  IV.

  Endogenous liquidity is the same as funding liquidity.

  A.

  I, II

  B.

  I, III

  C.

  II, III

  D.

  I, II, IV

  Correct Answer: A

• Question 126:

  If a bank is long £500 million pounds, short £300 million in delta-equivalent pound options, and long £100 million in pound-denominated stocks, what is the amount of pound exposure that would be shown in the aggregated risk reports?

  A. £300 million pounds

  B. £500 million pounds

  C. £800 million pounds

  D. £900 million pounds

  Correct Answer: A

• Question 127:

  How could a bank's hedging activities with futures contracts expose it to liquidity risk?

  A. The futures hedge may not work due to the widening of basis which could result in a loss for the bank.

  B. Prices may move such that a loss results on the hedge.

  C. Since futures require margins which are settled every day, the bank could find itself scrambling for funds.

  D. The bank could get exposed to liquidity risk since futures trade on an exchange.

  Correct Answer: C

• Question 128:

  An associate from the finance group has been identified as an operational risk coordinator (ORC) for her department. To fulfill her ORC responsibilities the associate will need to:

  I. Provide main communication contact with operational risk department

  II. Provide main reporting contact with audit department

  III. Coordinate collection of key risk indicators in her area

  IV.

  Coordinate training and awareness activities in her area

  A.

  I, II

  B.

  II, III, IV

  C.

  I, II, III

  D.

  I, III, IV

  Correct Answer: D

• Question 129:

  To improve the culture and awareness of the operational risk, Gamma Bank's CRO decides to promote three activities within her organization. Which one of the following four activities is NOT typically used to develop an operational risk framework?

  A. Marketing

  B. Planning

  C. Training

  D. Auditing

  Correct Answer: D

• Question 130:

  Nijenhaus Bruch is currently creating a program of operational loss data collection at a bank with a large branch network. Which minimal data standards should this collection approach include to meet minimum loss data collecting standards?

  A. Reports should only include the actual loss date.

  B. Reports should capture both the date of the event and the amount of loss.

  C. Reports should capture the date of the event, the amount of loss, and recoveries of gross loss amounts.

  D. Reports should be designed to be shared with external data loss consortia recipients.

  Correct Answer: C