GARP GARP Certifications 2016-FRR Questions & Answers

• Question 131:

  Bank Alpha is making a decision about lending 10-year loans in a sector that is fairly illiquid and is looking at various options to fund the loans. Which of the following options to fund the loans exhibits the most exogenous liquidity risk?

  A. Overnight interbank markets

  B. The 6-month LIBOR markets

  C. The 1-year treasury markets

  D. Foreign exchange markets

  Correct Answer: A

• Question 132:

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

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

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

  III. External 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: B

• Question 133:

  In its VaR calculations, JPMorgan Chase uses an expected tail-loss methodology which approximates losses at the 99% confidence level. This methodology consists of two subsequent steps to estimate the VaR. Which of the following explains this two-step methodology?

  A. After VaR is computed at the 97% confidence level, the expected tail loss in excess of that confidence level is determined, which is then compared with the VaR estimate at the 99% confidence level.

  B. After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence level is determined, which is then compared with the VaR estimate at the 98% confidence level.

  C. After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence level is determined, which is then compared with the VaR estimate at the 99% confidence level.

  D. After VaR is computed at the 1% confidence level, the expected tail loss in excess of that confidence level is determined, which and is then compared with the VaR estimate at the 98% confidence level.

  Correct Answer: A

• Question 134:

  Bank G has a 1-year VaR of USD 20 million at 99% confidence level while bank H has a 1-year VaR of USD 10 million at 95% confidence level. Which bank is in a more risky position as measured by VaR?

  A. Bank G is taking twice the risk of bank H as measured by VaR.

  B. Bank H is taking twice the risk of bank G as measured by VaR.

  C. Since the confidence levels are not the same we cannot make any conclusions.

  D. Both banks are equally risky since the measurements are with the same confidence level.

  Correct Answer: C

• Question 135:

  A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss than if the market had remained stable. However, if the market drops, the customer will benefit from the incorrect accounting and gain from this trade. This trading scenario can serve as an example that

  A. Market risk in this transaction can magnify operational risk.

  B. Credit risk in this transaction can magnify operational risk.

  C. Liquidity risk in this transaction can magnify operational risk.

  D. Strategic risk in this transaction can magnify operational risk.

  Correct Answer: A

• Question 136:

  A trader inadvertently booked a trade with incorrect information. A subsequent market move resulted in a gain to the bank. Should the bank include this amount of gain into its operational loss event data program?

  I. The bank should include this gain in its operational loss event data program as a gain realized due to operational risk events.

  II. The bank should include this gain in its operational loss event data program as it indicates that a control failed or a process is flawed.

  III.

  The bank should include this event in its operational loss event data program and record the gain as a loss resulting from operational risk.The bank should not include this event in its operational loss event data program as it is not a loss event, but a market risk event.

  A.

  I and II

  B.

  II and III

  C.

  I, II and III

  D.

  I and III

  Correct Answer: A

• Question 137:

  Which of the following statements explain how securitization makes the retail assets highly liquid and the balance sheet easier to manage?

  I. By securitizing assets any lack of capital can be accommodated by selling the securitized bonds.

  II. Any need to diversify credit risk can be achieved by selling bank's own securitized bonds and buying other bonds that increase diversification.

  III.

  Securitization could be used to promote hedging by using limited market instruments.

  A.

  I, II

  B.

  I, II, III

  C.

  II, III

  D.

  II

  Correct Answer: A

• Question 138:

  Which one of the following areas does not typically report into a central operational risk function?

  A. Business continuity planning

  B. Information security

  C. Geopolitical and strategic planning

  D. Embedded operational risk coordinators or specialists or managers

  Correct Answer: C

• Question 139:

  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

  Correct Answer: D

• Question 140:

  To reduce the variability of net interest income, Gamma Bank can swap positions that make its duration gap equal to

  A. 0

  B. 1

  C. -1

  D. 0.5

  Correct Answer: A