GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 201:

  An endowment asset manager with a focus on long/short equity strategies is evaluating the risks of an equity portfolio. Which of the following risk types does the asset manager need to consider when evaluating her diversified equity portfolio?

  I. Company-specific projected earnings and earnings risk

  II. Aggregate earnings expectations

  III. Market liquidity

  IV.

  Individual asset volatility

  A. I
  B. I, IV
  C. II, III
  D. I, II, IV
  I. Company-specific projected earnings and earnings risk II. Aggregate earnings expectations III. Market liquidity IV. Individual asset volatility
  C. II, III

• Question 202:

  Which one of the following four formulas correctly identifies the expected loss for all credit instruments?

  A. Expected Loss = Probability of Default x Loss Given Default x Exposure at Default
  B. Expected Loss = Probability of Default x Loss Given Default + Exposure at Default
  C. Expected Loss = Probability of Default x Loss Given Default - Exposure at Default
  D. Expected Loss = Probability of Default x Loss Given Default / Exposure at Default
  A. Expected Loss = Probability of Default x Loss Given Default x Exposure at Default

• Question 203:

  Over a long period of time DeltaBank has amassed a large equity option position. Which of the following risks should be considered in this transaction?

  I. Counterparty risk on long OTC option positions ICounterparty risk on short OTC option positions

  III. Counterparty risk on long exchange-traded option positions

  IV.

  Counterparty risk on short exchange-traded option positions

  A. I
  B. I, II
  C. II, III
  D. II, III, IV
  I. Counterparty risk on long OTC option positions ICounterparty risk on short OTC option positions III. Counterparty risk on long exchange-traded option positions IV. Counterparty risk on short exchange-traded option positions
  A. I

• Question 204:

  Which of the following are typical properties of a statistical distribution of potential losses that a bank might sustain over a period of time?

  I. The range of possible losses above the average loss is much greater than those below the average loss.

  II. The loss that is most likely to occur is below the average loss.

  III.

  The loss that is most likely to occur is above the average loss.

  A. II
  B. I, II
  C. I, III
  D. III
  I. The range of possible losses above the average loss is much greater than those below the average loss. II. The loss that is most likely to occur is below the average loss. III. The loss that is most likely to occur is above the average loss.
  A. II

• Question 205:

  What is a difference between currency swaps and interest rate swaps?

  A. Currency swaps do not require the exchange of notional principal on maturity.
  B. Currency swaps allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.
  C. Currency swaps are OTC derivative contracts.
  D. Currency swaps generate foreign exchange rate risk in addition to interest rate risk.
  D. Currency swaps generate foreign exchange rate risk in addition to interest rate risk.

• Question 206:

  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. Hence, the loss rate in this case will be

  A. 1%
  B. 3%
  C. 5%
  D. 10%
  A. 1%

• Question 207:

  Which one of the following four variables of the Black-Scholes model is typically NOT known at a point in time?

  A. The underlying relevant exchange rates
  B. The underlying interest rates
  C. The future volatility of the exchange rates
  D. The time to maturity
  C. The future volatility of the exchange rates

• Question 208:

  Which one of the following four statements about preferred shares is INCORRECT?

  A. Preferred shares refer to a class of securities that is a cross between equity and debt.
  B. Preferred shares represent residual of a corporation after its other liabilities have been paid.
  C. Preferred shares are subordinated to debt.
  D. Preferred shares can be perpetual or have maturities far exceeding debt maturities.
  B. Preferred shares represent residual of a corporation after its other liabilities have been paid.

• Question 209:

  A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5% semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk manager of the bank is concerned about the sensitivity to interest rates. Which of the following statements are true?

  A. The price of the bond paying floating interest is more sensitive to interest rates than the bond paying fixed interest.
  B. The price of the bond paying fixed interest is more sensitive to interest rates than the bond paying floating interest.
  C. Both bond prices are equally sensitive to interest rates.
  D. The given information is not enough to determine the sensitivity of the bond prices.
  B. The price of the bond paying fixed interest is more sensitive to interest rates than the bond paying floating interest.

• Question 210:

  A portfolio manager is interested in computing risk measures for his bond investment portfolio. Which of the following measures the sensitivity of duration to interest rates?

  A. Modified duration.
  B. Yield curve
  C. Convexity.
  D. Credit spread.
  C. Convexity.