GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 211:

  What are some of the drawbacks of correlation estimates? Which of the following statements identifies major problems with correlation calculations?

  I. Correlation estimates are not able to capture increases in factor co-movements in extreme market scenarios.

  II. Correlation estimates tend to be unstable.

  III. Historical correlations may not forecast future correlations correctly.

  IV.

  Correlation estimates assume normally distributed returns.

  A. I and II
  B. I and IV
  C. I, II and III
  D. II, III, and IV
  I. Correlation estimates are not able to capture increases in factor co-movements in extreme market scenarios. II. Correlation estimates tend to be unstable. III. Historical correlations may not forecast future correlations correctly. IV. Correlation estimates assume normally distributed returns.
  C. I, II and III

• Question 212:

  Gamma Bank estimates its monthly portfolio volatility at 5%.The portfolio's annual volatility is closest to which of the following?

  A. 8%
  B. 17%
  C. 30%
  D. 35%
  B. 17%

• Question 213:

  In the United States, stock investors must comply with the Regulation T of the Federal Reserve Bank and may borrow up to ___ of the value of the securities from their brokers.

  A. 30%
  B. 40%
  C. 50%
  D. 60%
  C. 50%

• Question 214:

  For two variables, which of the following is equal to the average product of the deviations from their respective means?

  A. Standard deviation
  B. Kurtosis
  C. Correlation
  D. Covariance
  D. Covariance

• Question 215:

  Which one of the four following statements about consortium databases is correct? Consortium databases:

  A. Gather information from news articles.
  B. Use data from the top 5% of the industry.
  C. Provide data to map risk categories with causes.
  D. Contain anonymous information.
  D. Contain anonymous information.

• Question 216:

  Which of the following statements about the interest rates and option prices is correct?

  A. If rho is positive, rising interest rates increase option prices.
  B. If rho is positive, rising interest rates decrease option prices.
  C. As interest rates rise, all options will rise in value.
  D. As interest rates fall, all options will rise in value.
  A. If rho is positive, rising interest rates increase option prices.

• Question 217:

  John owns a bond portfolio worth $2 million with duration of 10. What positions must he take to hedge this portfolio against a small parallel shifts in the term structure.

  A. Long position worth $2 million with duration of 10.
  B. Long position worth $20 million with duration of 1.
  C. Short position worth $2 million with duration of 10.
  D. Short position worth $20 million with duration of 1.
  C. Short position worth $2 million with duration of 10.

• Question 218:

  Which one of the following four statements does identify correctly the relationship between the value of an option and perceived exchange rate volatility?

  A. With increases in perceived future foreign exchange volatility, the value of all foreign exchange
  B. As the perceived future foreign exchange volatility decreases, the value of all options increases.
  C. As the perceived future foreign exchange volatility increases, the value of all options increases.
  D. Option values can only change due to the factors related to the demand for specific options
  C. As the perceived future foreign exchange volatility increases, the value of all options increases.

• Question 219:

  Which of the following statements regarding bonds is correct?

  I. Interest rates on bonds are typically stated on an annualized rate.

  II. Bonds can pay floating coupons that are directly linked to various interest rate indices.

  III. Convertible bonds have an element of prepayment risk.

  IV.

  Callable bonds have an element of equity risk.

  A. I only
  B. I and II
  C. I, II, and III
  D. II, III, and IV
  I. Interest rates on bonds are typically stated on an annualized rate. II. Bonds can pay floating coupons that are directly linked to various interest rate indices. III. Convertible bonds have an element of prepayment risk. IV. Callable bonds have an element of equity risk.
  B. I and II

• Question 220:

  When the cost of gold is $1,100 per bullion and the 3-month forward contract trades at $900, a commodity trader seeks out arbitrage opportunities in this relationship. To capitalize on any arbitrage opportunities, the trader could implement which one of the following four strategies?

  A. Short-sell physical gold and take a long position in the futures contract
  B. Take a long position in physical gold and short-sell the futures contract
  C. Short-sell both physical gold and futures contract
  D. Take long positions in both physical gold and futures contract
  A. Short-sell physical gold and take a long position in the futures contract