GARP GARP Certifications 2016-FRR Questions & Answers

• Question 231:

  Which one of the following four statements about equity indices is INCORRECT?

  A. Equity indices are numerical calculations that reflect the performance of hypothetical equity portfolios.

  B. Equity indices do not trade in cash form, rather, they are meant to track the overall performance of an equity market.

  C. Capitalization-weighted equity indices are not generally considered better to track the performance of an overall market.

  D. Price-weighted equity indices give greater weight to shares trading at high prices.

  Correct Answer: C

• Question 232:

  A large multinational bank is concerned that their duration measures may not be accurate since the yield curve shifts are not parallel. Which of the following statements would be typically observed regarding variability of interest rates?

  A. Short-term rates are more variable than long-term rates.

  B. Short-term rates are less variable than long-term rates.

  C. Short-term rates are equally variable as long-term rates.

  D. Short-term rates and long-term rates always move in opposite directions.

  Correct Answer: A

• Question 233:

  Rising TED spread is typically a sign of increase in what type of risk among large banks?

  I. Credit risk

  II. Market risk

  III. Liquidity risk

  IV.

  Operational risk

  A.

  I only

  B.

  II only

  C.

  I and IV

  D.

  I, II, and III

  Correct Answer: A

• Question 234:

  To achieve leverage in long positions, a bank can use the following strategy:

  I. Securities may be purchased with borrowed funds using a bank loan from the broker.

  II. Securities may be borrowed on margin by taking a loan from a broker.

  III. Securities may be purchased and used in a repo transaction to generate cash for further security purchases.

  IV.

  The bank may enter into a derivative transaction, such as a total return swap, that requires little to no collateral but mimics the performance of a long or short position in the underlying instrument.

  A.

  I, II

  B.

  I, III

  C.

  II, IV

  D.

  I, II, III, IV

  Correct Answer: D

• Question 235:

  Which one of the following four relationships should be used to price equity forwards or futures?

  A. Equity forward or futures price = market equity price + (1 + risk-free rate ?expected dividend rate)t

  B. Equity forward or futures price = market equity price x (1 - risk-free rate ?expected dividend rate)t

  C. Equity forward or futures price = market equity price x (1 + risk-free rate ?expected dividend rate)t

  D. Equity forward or futures price = market equity price + (1 + risk-free rate + expected dividend rate)t

  Correct Answer: C

• Question 236:

  Which one of the following four exercise features is typical for the most exchange-traded equity options?

  A. Asian exercise feature

  B. American exercise feature

  C. European exercise feature

  D. A shout option exercise feature

  Correct Answer: B

• Question 237:

  From a risk point of view, which of the following factors will generally lead to the fluctuation of equity values with industry P/E levels and a company's individual earnings?

  I. Sales

  II. Cost management

  III. Commercial success of the company

  IV.

  Market sentiment

  A.

  I, II

  B.

  II, IV

  C.

  III, IV

  D.

  I, II, III

  Correct Answer: D

• Question 238:

  Present value of a basis point (PVBP) is one of the ways to quantify the risk of a bond, and it measures:

  A. The change in value of a bond when yields increase by 0.01%.

  B. The percentage change in bond price when yields change by 1 basis point.

  C. The present value of the future cash flows of a bond calculated at a yield equal to 1%.

  D. The percentage change in bond price when the yields change by 1%.

  Correct Answer: A

• Question 239:

  Which one of the following statements regarding collateralized mortgage obligations (CMO) is incorrect?

  A. CMOs have senior tranches which are considered short-term, low-risk instruments by banks

  B. CMOs are asset-backed securities that have pools of collateralized debt obligations (CDOs) as underlying collateral.

  C. CMOs are generally less risky investment than CDOs.

  D. CMOs are pools of mortgages that are divided according to the timing of cash flows.

  Correct Answer: B

• Question 240:

  To estimate the responsiveness of a particular equity portfolio to the overall market, a trader should use the portfolio's

  A. Alpha

  B. Beta

  C. CVaR

  D. VaR

  Correct Answer: B