GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 251:

  A risk analyst is considering how to reduce the bank's exposure to rising interest rates. Which of the following strategies will help her achieve this objective?

  I. Reducing the average repricing time of its loans

  II. Increasing the average repricing time of its deposits III. Entering into interest rate swaps

  IV.

  Improving earnings capacity and increasing intermediated funds

  A. I, II
  B. III
  C. IV
  D. I, II, IV
  I. Reducing the average repricing time of its loans II. Increasing the average repricing time of its deposits III. Entering into interest rate swaps IV. Improving earnings capacity and increasing intermediated funds
  D. I, II, IV

• Question 252:

  A bank has a Var estimate of $100 million. It is considering a new transaction which has a correlation of 0.35 with the current portfolio and a standalone VaR estimate of $5 million. What would be the new VaR for the bank if it carried out the transaction?

  A. $105 million
  B. $101.86 million
  C. $100.22 million
  D. $ 213.67 million
  B. $101.86 million

• Question 253:

  The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential failure of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed, the principal and the contractual interest payments, would be called ___.

  A. Credit risk; market risk
  B. Market risk; credit risk
  C. Credit risk; performance risk
  D. Performance risk; credit risk
  D. Performance risk; credit risk

• Question 254:

  Which one of the following four statements correctly identifies disadvantages of using the economic capital?

  A. The economic capital models used by banks may be subject to significant model risk.
  B. Economic capital may do not take into consideration the regulatory requirements.
  C. Since banks are putting their money at risk they have an incentive to increase economic capital.
  D. Economic capital estimates the level of expected losses.
  A. The economic capital models used by banks may be subject to significant model risk.

• Question 255:

  On January 1, 2010 the TED (treasury-euro dollar) spread was 0.9%, and on January 31, 2010 the TED spread is 0.4%. As a risk manager, how would you interpret this change?

  A. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.
  B. The decrease in the TED spread indicates an increase in credit risk on interbank loans.
  C. Increase in interest rates on both interbank loans and T-bills.
  D. Increase in credit risk on T-bills.
  A. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.

• Question 256:

  Which one of the following four examples would not be considered a typical source of market risk?

  A. Unexpected changes in the term structure of interest rates.
  B. The JPY depreciating against the USD.
  C. Increased default rate on commercial mortgages due to higher interest rates.
  D. Changes in the oil price due to the discovery of new oil fields.
  C. Increased default rate on commercial mortgages due to higher interest rates.

• Question 257:

  A credit portfolio manager analyzes a large retail credit portfolio. Which of the following factors will represent typical disadvantages of market-linked credit risk drivers?

  I. Need to supply a large number of input parameters to the model

  II. Slow computation speed due to higher simulation complexity

  III. Non-linear nature of the model applicable to a specific type of credit portfolios

  IV.

  Need to estimate a large number of unknown variable and use approximations

  A. I
  B. I, II
  C. II, III
  D. III, IV
  I. Need to supply a large number of input parameters to the model II. Slow computation speed due to higher simulation complexity III. Non-linear nature of the model applicable to a specific type of credit portfolios IV. Need to estimate a large number of unknown variable and use approximations
  B. I, II

• Question 258:

  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%
  C. 2.0%

• Question 259:

  Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield curve?

  A. Take positions to reduce the duration
  B. Take positions to increase the duration
  C. Take positions to make the convexity zero
  D. Since the portfolio is duration hedged Sam does not need to take additional positions.
  C. Take positions to make the convexity zero

• Question 260:

  Which one of the following four statements on factors affecting the value of options is correct?

  A. As volatility rises, options increase in value.
  B. As time passes, options will increase in value.
  C. As interest rates rise and option's rho is positive, option prices will decrease.
  D. As the value of underlying security increases, the value of the put option increases.
  A. As volatility rises, options increase in value.