GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 191:

  When a credit risk manager analyzes default patterns in a specific neighborhood, she finds that defaults are increasing as the stigma of default evaporates, and more borrowers default. This phenomenon constitutes

  A. Moral hazard
  B. Speculative bias
  C. Herd behavior
  D. Adverse selection
  C. Herd behavior

• Question 192:

  Asset and liability management is typically concerned with all of the following activities:

  I. Maintaining the desired liquidity structure of the bank.

  II. Managing the factors affecting the structure and composition of a bank's balance sheet.

  III. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer price.

  IV.

  Focusing on the circumstances impacting the stability of income the bank generates over time.

  A. I
  B. II, III
  C. III, IV
  D. I, II, IV
  I. Maintaining the desired liquidity structure of the bank. II. Managing the factors affecting the structure and composition of a bank's balance sheet. III. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer price. IV. Focusing on the circumstances impacting the stability of income the bank generates over time.
  D. I, II, IV

• Question 193:

  Banks duration match their assets and liabilities to manage their interest risk in their banking book. Currently, the bank's assets and liabilities both have a duration of 10. To hedge against the risk of decreasing interest rates, the bank should:

  I. Increase the duration of the liabilities

  II. Increase the duration of the assets

  III. Decrease the duration of the liabilities

  IV.

  Decrease the duration of the assets

  A. I only.
  B. I and II.
  C. II and III.
  D. I and IV
  I. Increase the duration of the liabilities II. Increase the duration of the assets III. Decrease the duration of the liabilities IV. Decrease the duration of the assets
  D. I and IV

• Question 194:

  James Johnson manages a bond portfolio with all investment grade bonds. Adding which of the following bonds would minimize the credit risk of his portfolio?

  A. A
  B. B
  C. C
  D. D
  A. A

• Question 195:

  To improve the culture and awareness of the operational risk, Gamma Bank's CRO decides to promote three activities within her organization. Which one of the following four activities is NOT typically used to develop an operational risk framework?

  A. Marketing
  B. Planning
  C. Training
  D. Auditing
  D. Auditing

• Question 196:

  As an example of the balance sheet effect, if rates rise, Delta Bank can expect:

  A. Its fixed rate assets to increase in value, although that effect will be offset by a reduction in the value of its fixed rate liabilities.
  B. Its fixed rate assets to drop in value, although that effect will be offset by a reduction in the value of its fixed rate liabilities.
  C. Its fixed rate assets to increase in value, while that effect will be amplified by a reduction in the value of its fixed rate liabilities.
  D. Its fixed rate assets to drop in value, while that effect will be amplified by a reduction in the value of its fixed rate liabilities.
  B. Its fixed rate assets to drop in value, although that effect will be offset by a reduction in the value of its fixed rate liabilities.

• Question 197:

  A credit analyst wants to determine a good pricing strategy to compensate for credit decisions that might have been made incorrectly. When analyzing her credit portfolio, the analyst focuses on the spreads in each loan to determine if they are sufficient to compensate the bank for all of the following costs and risks EXCEPT.

  A. The marginal cost of funds provided.
  B. The overhead cost of maintaining the loan and the account.
  C. The inherent risk of lending to this borrower while providing a return on the risk capital used to the support the loan.
  D. The opportunity cost of risk-adjusted marginal cost of capital.
  D. The opportunity cost of risk-adjusted marginal cost of capital.

• Question 198:

  Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's expected loss be? What is the expected loss of this loan?

  A. $300
  B. $550
  C. $750
  D. $1,050
  D. $1,050

• Question 199:

  The exercise for an American type option prior to expiration day is virtually certain in the following case:

  A. In the event of a high dividend for an in-the-money call option
  B. In the event of a high dividend for an in-the-money put option
  C. In the event of a low dividend for an in-the-money call option
  D. In the event of a low dividend for an in-the-money put option
  A. In the event of a high dividend for an in-the-money call option

• Question 200:

  When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no credit losses.

  A. Symmetric; less
  B. Symmetric; greater
  C. Asymmetric; less
  D. Asymmetric; greater
  D. Asymmetric; greater