GARP GARP Certifications 2016-FRR Questions & Answers

• Question 241:

  Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. 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?

  A. $500

  B. $750

  C. $1,000

  D. $1,300

  Correct Answer: A

• Question 242:

  To hedge a foreign exchange exposure on behalf of a client, a small regional bank seeks to enter into an offsetting foreign exchange transaction. It cannot access the large and liquid interbank market open primarily to larger banks. At which one of the following exchanges can the smaller bank trade the currency futures contracts?

  I. The Tokyo Futures Exchange

  II. The Euronext-Liffe Exchange

  III.

  The Chicago Mercantile Exchange

  A.

  I

  B.

  III

  C.

  II, III

  D.

  I, II, III

  Correct Answer: D

• Question 243:

  If the yield on the 3-month risk free bonds issued by the U.S government is 0.5%, and the 3-month LIBOR rate is 2.5%, what is the TED spread?

  A. 0.5%

  B. -2.0%

  C. 2.0%

  D. 3.0%

  Correct Answer: C

• Question 244:

  Which of the following statements regarding CDO-squared is correct?

  I. CDO-squared use other CDOs and CMOs as collateral.

  II. Risk assessment of CDO-squared is almost impossible due to their complexity.

  III.

  CDO-squared have lower credit risk than CMOs but higher than CDOs.

  A.

  I only

  B.

  I and II

  C.

  II and III

  D.

  I, II, and III

  Correct Answer: B

• Question 245:

  Which one of the following four statements regarding bank's exposure to credit and default risk is INCORRECT?

  A. The more the bank diversifies its credit portfolio, the better spread its credit risks become.

  B. In debt management, the value of any loan exposure will change typically in a fashion similar the same way that an equity investment can.

  C. In debt management, the goal is to minimize the effect of any defaults.

  D. Default risk cannot be hedged away fully, and it will always exist for the holder of the credit or for the person insuring against the credit or default event.

  Correct Answer: B

• Question 246:

  Changes to which one of the following four factors would typically not increase the cost of credit?

  A. Increasing inflation rates in a country.

  B. Increase in consumption of goods and services.

  C. Higher risk premium on a fixed income instrument.

  D. Higher return earned on alternative investments.

  Correct Answer: C

• Question 247:

  Which one of the following four statements about the relationship between exchange rates and option values is correct?

  A. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate decreases.

  B. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate increases.

  C. As the dollar depreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate increases.

  D. As the dollar appreciates relative to the pound, the right to sell dollars at a fixed pound exchange rate increases.

  Correct Answer: B

• Question 248:

  To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements:

  I. Bonds

  II. Marketable loans

  III.

  Credit card loans

  A.

  I

  B.

  II

  C.

  I, II

  D.

  II, III

  Correct Answer: C

• Question 249:

  Altman's Z-score incorporates all the following variables that are predictive of bankruptcy EXCEPT:

  A. Return on total assets

  B. Sales to total assets

  C. Equity to debt

  D. Return on equity

  Correct Answer: D

• Question 250:

  Which one of the following four option types has two strike prices?

  A. Asian options

  B. American options

  C. Range options

  D. Shout options

  Correct Answer: D