GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 171:

  Which one of the following four statements correctly defines an option's delta?

  A. Delta measures the expected decline in option with time and is usually expressed in years.
  B. Delta measures the effect of 1 bp in interest rate change on the option price.
  C. Delta is the multiplier that best approximates the short-term change in the value of an option.
  D. Delta measures the impact of volatility on the price of an option.
  C. Delta is the multiplier that best approximates the short-term change in the value of an option.

• Question 172:

  A credit associate extending a loan to an obligor suspects that the obligor may change his behavior after the loan has been originated. The obligor in this case may use the loan proceeds for purposes not sanctioned by the lender, thereby increasing the risk of default. Hence, the credit associate must estimate the probability of default based on the assumptions about the applicability of the following tendency to this lending situation:

  A. Speculation
  B. Short bias
  C. Moral hazard
  D. Adverse selection
  C. Moral hazard

• Question 173:

  Which of the following are among the main uses of risk reports?

  I. Identification of exceptional situations that require managerial attention.

  II. Display the relative risk among different trades.

  III. Specify how RAROC will be maximized within the bank.

  IV.

  Estimate the overall risk levels of the bank.

  A. I, II and IV
  B. II and III
  C. II and IV
  D. II, III, and IV
  I. Identification of exceptional situations that require managerial attention. II. Display the relative risk among different trades. III. Specify how RAROC will be maximized within the bank. IV. Estimate the overall risk levels of the bank.
  A. I, II and IV

• Question 174:

  Counterparty credit risk assessment differs from traditional credit risk assessment in all of the following features EXCEPT:

  A. Exposures can often be netted
  B. Exposure at default may be negatively correlated to the probability of default
  C. Counterparty risk creates a two-way credit exposure
  D. Collateral arrangements are typically static in nature
  D. Collateral arrangements are typically static in nature

• Question 175:

  Which one of the following market risk measures evaluates the bank's earnings sensitivity?

  A. Cash flow stress testing
  B. Large exposure risk identification
  C. Earnings-at-risk stress testing
  D. Value-at-risk back testing
  C. Earnings-at-risk stress testing

• Question 176:

  Which one of the following four statements regarding bank's exposure to credit and default risk is INCORRECT?

  A. The more the bank diversifies its credit portfolio, the better spread its credit risks become.
  B. In debt management, the value of any loan exposure will change typically in a fashion similar the same way that an equity investment can.
  C. In debt management, the goal is to minimize the effect of any defaults.
  D. Default risk cannot be hedged away fully, and it will always exist for the holder of the credit or for the person insuring against the credit or default event.
  B. In debt management, the value of any loan exposure will change typically in a fashion similar the same way that an equity investment can.

• Question 177:

  Which one of the following four factors typically drives the pricing of wholesale products?

  A. Marketing considerations
  B. Prevailing market price
  C. Long-term competitiveness
  D. Overall risk exposure
  B. Prevailing market price

• Question 178:

  What is generally true of the relationship between a bond's yield and it's time to maturity when the yield curve is upward sloping?

  A. The longer the time to maturity of the bond, the lower its yield.
  B. The longer the time to maturity of the bond, the higher its yield.
  C. The shorter the time to maturity of the bond, the higher its yield.
  D. There is no relationship between the two
  B. The longer the time to maturity of the bond, the higher its yield.

• Question 179:

  Mega Bank has $100 million in deposits on which it pays 3% interest, and $20 million in equity on which it pays no interest. The loan portfolio of $120 million earns an average rate of 10%. If the rates remain the same and Mega Bank is able to earn the same net interest income in perpetuity at a 5% discount rate, what will the present value of this holding be?

  A. $100 million
  B. $150 million
  C. $180 million
  D. $200 million
  C. $180 million

• Question 180:

  Which one of the following four physical commodities markets has the right combination of characteristics that generally allows short selling in the market, without making the short-selling transaction prohibitively expensive?

  A. Oil
  B. Natural Gas
  C. Grain D. Gold
  D