GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 131:

  Which of the following about the ratios between various Tiers of capital is not a requirement of the Basel Committee?

  A. Tier 2 capital cannot exceed 50% of the bank's total regulatory capital.
  B. Innovative instruments in Tier 1 are limited to a maximum of 15% of Tier 1 capital.
  C. Lower Tier 2 capital may only equal 50% of core capital.
  D. Upper Tier 2 capital may only equal 30% of core capital.
  B. Innovative instruments in Tier 1 are limited to a maximum of 15% of Tier 1 capital.

• Question 132:

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

• Question 133:

  On January 1, 2010 the TED (treasury-euro dollar) spread was 0.4%, and on January 31, 2010 the TED spread is 0.9%. As a risk manager, how would you interpret this change?

  A. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.
  B. The decrease in the TED spread indicates an increase in credit risk on interbank loans.
  C. Increase in interest rates on both interbank loans and T-bills.
  D. Increase in credit risk on T-bills.
  B. The decrease in the TED spread indicates an increase in credit risk on interbank loans.

• Question 134:

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

  B. 1
  C. -1
  D. 0.5
  A

• Question 135:

  Which of the following are conclusions that could be drawn from the shape of the statistical distribution of losses that a bank might incur over a future time period?

  I. In most years a bank would look more profitable than it will be on average.

  II. Most of the time a sufficiently well capitalized bank will appear over-capitalized.

  III.

  Bad years do not come along very often, but when they do they lead to enormous losses.

  A. I, II
  B. I, III
  C. II, III
  D. I, II, III
  I. In most years a bank would look more profitable than it will be on average. II. Most of the time a sufficiently well capitalized bank will appear over-capitalized. III. Bad years do not come along very often, but when they do they lead to enormous losses.
  D. I, II, III

• Question 136:

  To safeguard its capital and obtain insurance if the borrowers cannot repay their loans, Gamma Bank accepts financial collateral to manage its credit risk and mitigate the effect of the borrowers' defaults. Gamma Bank will typically accept all of the following instruments as financial collateral EXCEPT?

  A. Unrated bonds issued and traded on a recognized exchange
  B. Equities and convertible bonds included in a main market index
  C. Commercial debts owed to a company in a form of receivables
  D. Mutual fund shares and similar unit investment vehicles subject to daily quotes
  C. Commercial debts owed to a company in a form of receivables

• Question 137:

  Gamma Bank is operating in a highly volatile interest rate environment and wants to stabilize its net income by shifting the sources of its earnings from interest rate sensitive sources to less interest rate sensitive sources. All of the following strategies can help achieve this objective EXCEPT:

  A. Charge bank fees for underwriting loans
  B. Provide trust, asset management, and trading services to customers
  C. Extend different types of credit
  D. Originate more floating interest rate loans
  D. Originate more floating interest rate loans

• Question 138:

  The Basel II Accord's operational risk definition excludes all of the following items EXCEPT:

  A. Legal risk
  B. Strategic risk
  C. Reputational risk
  D. Geopolitical risk
  A. Legal risk

• Question 139:

  As Japan ___ its budget deficits and ___ its dependence on debt, the Japanese currency, JPY, would ___ in value against other currencies.

  A. Reduces, reduces, appreciate
  B. Reduces, reduces, depreciate
  C. Increases, reduces, appreciate
  D. Reduces, increases, depreciate
  A. Reduces, reduces, appreciate

• Question 140:

  To estimate a partial change in option price, a risk manager will use the following formula:

  A. Partial change in option price = Delta x Change in underlying price
  B. Partial change in option price = Delta x (1+ Change in underlying price)
  C. Partial change in option price = Delta x Gamma x Change in underlying price
  D. Partial change in option price = Delta x Gamma x (1+ Change in underlying price)
  A. Partial change in option price = Delta x Change in underlying price