GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 11:

  Which one of the following four metrics represents the difference between the expected loss and unexpected loss on a credit portfolio?

  A. Credit VaR
  B. Probability of default
  C. Loss given default
  D. Modified duration
  A. Credit VaR

• Question 12:

  The market risk manager of SigmaBank is concerned with the value of the assets in the bank's trading book. Which one of the four following positions would most likely be not included in that book?

  A. 10,000 shares of IBM worth $10,000,000.
  B. $10,000,000 loan to IBM worth $9,800,000.
  C. $10,000,000 bond issued by IBM worth $11,000,000.
  D. 300,000 options on IBM shares worth $10,000,000.
  B. $10,000,000 loan to IBM worth $9,800,000.

• Question 13:

  To estimate the interest charges on the loan, an analyst should use one of the following four formulas:

  A. Loan interest = Risk-free rate - Probability of default x Loss given default + Spread
  B. Loan interest = Risk-free rate + Probability of default x Loss given default + Spread
  C. Loan interest = Risk-free rate - Probability of default x Loss given default - Spread
  D. Loan interest = Risk-free rate + Probability of default x Loss given default - Spread
  B. Loan interest = Risk-free rate + Probability of default x Loss given default + Spread

• Question 14:

  A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations. If these CDOs can be used in a repo transaction at a 20% haircut, what is the maximum leverage factor for a transaction with the CDOs?

  A. 0.8
  B. 1.5
  C. 3
  D. 5
  D. 5

• Question 15:

  Which of the following risk measures are based on the underlying assumption that interest rates across all maturities change by exactly the same amount?

  I. Present value of a basis point.

  II. Yield volatility.

  III. Macaulay's duration.

  IV.

  Modified duration.

  A. I and II
  B. I, II, and III
  C. I, III, and IV
  D. I, II, III, and IV
  I. Present value of a basis point. II. Yield volatility. III. Macaulay's duration. IV. Modified duration.
  C. I, III, and IV

• Question 16:

  An asset manager for a large mutual fund is considering forward exchange positions traded in a clearinghouse system and needs to mitigate the risks created as a result of this operation. Which of the following risks will be created as a result of the forward exchange transaction?

  A. Exchange rate risk
  B. Exchange rate and interest rate risk
  C. Credit risk
  D. Exchange rate and credit risk
  B. Exchange rate and interest rate risk

• Question 17:

  ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies have an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, the actual probability would be underestimated by:

  A. 1%
  B. 2%
  C. 3%
  D. 4%
  D. 4%

• Question 18:

  Alpha Bank estimates that the annualized standard deviation of its portfolio returns equal 30%; The daily volatility of the portfolio is closest to which of the following?

  A. 1.0%
  B. 2.0%
  C. 2.5%
  D. 3.0%
  B. 2.0%

• Question 19:

  All of the following factors generally explain the equity bid-offer spread in a market EXCEPT:

  A. Market volatility
  B. Interest rates
  C. Competition among market makers
  D. Market depth
  B. Interest rates

• Question 20:

  Which one of the following four statements regarding commodity derivative risks is INCORRECT?

  A. Because of the different demand/supply balance in each region and the cost of transporting the oil between regions, a tanker of Brent crude oil in the UK will have a different value to a UK buyer than a tanker of Arab light crude oil in Singapore, which results in the basis risk.
  B. Calendar spreads represent a special case of basis risk and occur when the relative prices of commodity futures do not come in alignment and the trader becomes exposed to the absolute price movements.
  C. In most commodities, the longest term contracts are the most volatile, while the shortest term forward contract are the least volatile.
  D. Some commodities can be both in backwardation and a have a strong seasonal element.
  C. In most commodities, the longest term contracts are the most volatile, while the shortest term forward contract are the least volatile.