GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 161:

  Which one of the four following statements regarding minimum loss data standards is not correct?

  A. The loss data entry must include the actual loss amount.
  B. The loss data program must comprehensively capture all material activities.
  C. The loss data entry should only include the date when the event was reported.
  D. The loss data entry may include descriptive information about the drivers or causes of the loss event.
  C. The loss data entry should only include the date when the event was reported.

• Question 162:

  A risk associate is trying to determine the required risk-adjusted rate of return on a stock using the Capital Asset Pricing Model. Which of the following equations should she use to calculate the required return?

  A. Required return = risk-free return + beta x market risk
  B. Required return = (1-risk free return) + beta x market risk
  C. Required return = risk-free return + beta x (1 ?market risk)
  D. Required return = risk-free return + 1/beta x market risk
  A. Required return = risk-free return + beta x market risk

• Question 163:

  Which one of the following four statements correctly defines a typical carry trade?

  A. A bank borrows funds in a high-interest currency and places the funds in a long-term low volatility investment vehicle.
  B. A bank borrows funds in a high-interest currency and invests the funds into high-yield emerging market debt.
  C. A bank borrows funds in a low-interest currency and places the funds on deposit in a high-interest currency.
  D. A bank borrows funds in a low-interest currency, accumulates reserves, and lends in another low- interest currency.
  C. A bank borrows funds in a low-interest currency and places the funds on deposit in a high-interest currency.

• Question 164:

  Which one of the following four statements describes the advantage of using delta-gamma method of mapping options positions over delta-normal method? Delta-gamma method

  A. Converts options into underlying factor risks according to their deltas and the gammas to those factors.
  B. Fully captures option price risk, particularly for extreme price movements.
  C. Overstates the risk of long option positions, but understate the risk of short option positions.
  D. Approximates more accurately the non-linear relationship of option values and risk.
  D. Approximates more accurately the non-linear relationship of option values and risk.

• Question 165:

  The value of which one of the following four option types is typically dependent on both the final price of its underlying asset and its own price history?

  A. Stout options
  B. Power options
  C. Chooser options
  D. Basket options
  A. Stout options

• Question 166:

  The risk management department of VegaBank wants to set guidelines on commodity carry trades. Which of the following strategies should she pursue to achieve a profitable commodity carry?

  I. Buy short-term commodity futures and sell longer-dated position when the curve is in contango.

  II. Buy short-term commodity futures and sell longer-dated position when the curve is in backwardation.

  III. Buy long-term commodity futures and sell shorter-dated positions when the curve is in contango.

  IV.

  Buy long-term commodity futures and sell shorter-dated positions when the curve is in backwardation.

  A. I, II
  B. I, III
  C. II, IV
  D. I, IV
  I. Buy short-term commodity futures and sell longer-dated position when the curve is in contango. II. Buy short-term commodity futures and sell longer-dated position when the curve is in backwardation. III. Buy long-term commodity futures and sell shorter-dated positions when the curve is in contango. IV. Buy long-term commodity futures and sell shorter-dated positions when the curve is in backwardation.
  D. I, IV

• Question 167:

  A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian dollars and sell Brazilian reals. Alpha bank does not hold reals so it asks for a quote to buy Brazilian reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer and sells the real at this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange matched transaction. What is the impact of this transaction on the bank's risk profile?

  A. This transaction eliminates credit risk.
  B. This transaction eliminates counterparty risk.
  C. This transaction eliminates market risk.
  D. This transaction eliminates operational risk.
  C. This transaction eliminates market risk.

• Question 168:

  Which one of the four following statements about technology systems for managing operational risk event data is incorrect?

  A. Operational risk event databases are always integrated with the other components of the operational risk management program.
  B. Operational risk loss event data collection software can be internally developed.
  C. Operational risk event databases are independent elements of the operational risk management framework.
  D. The implementation of a new operational risk event loss database has to incorporate an analysis of the advantages and disadvantages of external systems.
  A. Operational risk event databases are always integrated with the other components of the operational risk management program.

• Question 169:

  A key function of treasuries in commercial/retail banks is:

  I. To manage the interest margin of the banks.

  II. To focus on underwriting risk.

  III. To ensure strong earnings.

  IV.

  To increase profit margins.

  A. I
  B. II
  C. II, III
  D. III, IV
  I. To manage the interest margin of the banks. II. To focus on underwriting risk. III. To ensure strong earnings. IV. To increase profit margins.
  A. I

• Question 170:

  Normally, commercial banking can be viewed as a fixed income carry trade since

  A. Short-term floating-rate deposits are used to fund long-term fixed rate loans.
  B. Short-term fixed rate deposits are used to fund long-term floating rate loans.
  C. Short-term fixed-rate deposits are used to fund short-term floating rate loans.
  D. Short-term floating-rate deposits are used to fund short-term floating rate loans.
  A. Short-term floating-rate deposits are used to fund long-term fixed rate loans.