GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 151:

  A risk manager is analyzing a call option on the GBP with a vega of 0.02. When the perceived future volatility increases by 1%, the call option

  A. Increases in value by 0.02.
  B. Increases in value by 2.
  C. Decreases in value by 0.02.
  D. Decreases in value by 2.
  A. Increases in value by 0.02.

• Question 152:

  Mega Bank holds a $250 million mortgage loan portfolio, which reprices every 5 years at LIBOR + 10%. The bank also has $150 million in deposits that reprices every month at LIBOR + 3%. What is the amount of Mega Bank's rate sensitive liabilities?

  A. $100 million
  B. $150 million
  C. $200 million
  D. $250 million
  B. $150 million

• Question 153:

  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
  I. Maturing of bank debt II. Repurchase agreements III. Futures margins IV. Staff turnover
  D. I, II and III

• Question 154:

  What do option deltas measure?

  A. The rate of change of the option value with respect to changes in volatility of the underlying instrument.
  B. The sensitivity of the option value to changes risk free interest rate.
  C. The rate of change of the option value with respect to changes in the price of the underlying instrument.
  D. The sensitivity of the option value to the passage of time.
  C. The rate of change of the option value with respect to changes in the price of the underlying instrument.

• Question 155:

  Which one of the following four model types would assign an obligor to an obligor class based on the risk characteristics of the borrower at the time the loan was originated and estimate the default probability based on the past default rate of the members of that particular class?

  A. Dynamic models
  B. Causal models
  C. Historical frequency models
  D. Credit rating models
  C. Historical frequency models

• Question 156:

  Which of the following attributes of duration gap model typically cause criticism?

  I. Basis risk

  II. Errors in the linear model

  III. Costs of immunization

  IV.

  Constant nature of calculation

  A. I, II
  B. II, III, IV
  C. I, II, III
  D. I, III, IV
  I. Basis risk II. Errors in the linear model III. Costs of immunization IV. Constant nature of calculation
  C. I, II, III

• Question 157:

  Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one- year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment. Six months after Alpha Bank provides USD $1 million loan to the Delta Industrial Machinery Corporation, a new competitor enters the machinery industry, causing Delta to adjust its prices and mark down the value of its inventory. Hence, the probability of default increases from 2% to 10% and the loss given default increases from 50% to 75%. If Alpha Bank can reprice the loan, what should the new rate be?

  A. 10%
  B. 13%
  C. 16.5%
  D. 20.5%
  D. 20.5%

• Question 158:

  An options trader is assessing the aggregate risk of her currency options exposures. As an options buyer, she can potentially ___ lose more than the premium originally paid. As an option seller, however, she has a ___ risk on the contract and always receives a premium.

  A. Never, unlimited
  B. Sometimes, unlimited
  C. Never, limited
  D. Sometimes, limited
  A. Never, unlimited

• Question 159:

  Which of the following risk types are historically associated with credit derivatives?

  I. Documentation risk

  II. Definition of credit events

  III. Occurrence of credit events

  IV.

  Enterprise risk

  A. I, IV
  B. I, II
  C. I, II, III
  D. II, III, IV
  I. Documentation risk II. Definition of credit events III. Occurrence of credit events IV. Enterprise risk
  C. I, II, III

• Question 160:

  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.
  A. Higher degrees of exposure at less cash cost