GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 261:

  Which of the following statements about parametric and nonparametric methods for calculating Value-at- risk is correct?

  A. Parametric methods generally assume returns are normally distributed, and non-parametric methods make no assumptions about return distributions.
  B. Parametric methods make no assumptions about return distributions, and non-parametric methods assume returns are normally distributed.
  C. Both parametric and nonparametric methods assume returns are normally distributed.
  D. Both parametric and nonparametric methods make no assumptions about return distributions.
  A. Parametric methods generally assume returns are normally distributed, and non-parametric methods make no assumptions about return distributions.

• Question 262:

  Which of the following statements about a bank's behavior regarding Risk Adjusted Return on Capital (RAROC) is correct?

  I. A bank should always seek to maximize their overall RAROC.

  II. A bank should consider investing in a business even with negative RAROC if it increases the RAROC of the bank as a whole.

  III. A bank should minimize its overall RAROC by controlling the absolute and relative amount of risk of its businesses.

  IV.

  A bank should maximize its RAROC by always investing in a new business that maximizes the RAROC for that business unit.

  A. I and II
  B. II and IV
  C. I, II and III
  D. II, III, and IV
  I. A bank should always seek to maximize their overall RAROC. II. A bank should consider investing in a business even with negative RAROC if it increases the RAROC of the bank as a whole. III. A bank should minimize its overall RAROC by controlling the absolute and relative amount of risk of its businesses. IV. A bank should maximize its RAROC by always investing in a new business that maximizes the RAROC for that business unit.
  A. I and II

• Question 263:

  To estimate the required risk-adjusted rate of return on a highly volatile energy stock, a risk associate compiled the following statistics:

  Risk-free rate = 5%

  Beta = 2.5

  Market Risk = 8%

  Using the Capital Asset Pricing Model, she estimates the rate of return to be equal:

  A. 10%
  B. 15%
  C. 25%
  D. 40%
  C. 25%

• Question 264:

  What are the add-on losses faced by a bank that is going bankrupt?

  I. The discount accepted by the bank for selling its assets in a fire sale.

  II. The increased cost of funding liabilities in a financially distressed situation.

  III. The reduction in the present value of future growth opportunities.

  IV.

  Loss of goodwill and intangible assets.

  A. I, II
  B. II, III, IV
  C. III, IV
  D. I, II, III, IV.
  I. The discount accepted by the bank for selling its assets in a fire sale. II. The increased cost of funding liabilities in a financially distressed situation. III. The reduction in the present value of future growth opportunities. IV. Loss of goodwill and intangible assets.
  D. I, II, III, IV.

• Question 265:

  Which one of the following four alternatives lists the three most widely traded currencies on the global foreign exchange market, as of April 2007, in the decreasing order of market share? EUR is the abbreviation of the European euro, JPY is for the Japanese yen, and USD is for the United States dollar, respectively.

  A. JPY, EUR, USD
  B. USD, EUR, JPY
  C. USD, JPY, EUR
  D. EUR, USD, JPY
  B. USD, EUR, JPY

• Question 266:

  Which of the following are the most common methods to increase liquidity in stressed conditions?

  I. Selling or securitizing assets.

  II. Obtaining additional credit lines.

  III.

  Securing a better credit rating.

  A. I
  B. I, II
  C. I, II, III
  D. II, III
  I. Selling or securitizing assets. II. Obtaining additional credit lines. III. Securing a better credit rating.
  B. I, II

• Question 267:

  Beta Insurance Company is only allowed to invest in investment grade bonds. To maximize the interest income, Beta Insurance Company should invest in bonds with which of the following ratings?

  A. AAA
  B. AA
  C. A
  D. B
  C. A

• Question 268:

  Since most consumers of natural gas do not have the ability to store it, they contract with gas suppliers to receive a flow of natural gas equal to a specific number of MMBT's per day (MMBT is millions of British Termal Units, the unit in which gas futures are quoted on the U.S. markets). To protect against price increases with a bank, the natural gas consumer, concerned with the average price over the course of the month, will use the following contracts:

  A. American options
  B. Asian options
  C. Compound options
  D. Flexible volume options
  B. Asian options

• Question 269:

  A customer of EtaBank, Alfred Fall, fell on the marble floors of the bank and sustained substantial injuries. Subsequently, he won a personal injury claim of $50,000 against EtaBank. How should EtaBank's operational loss data event information database categorize this event?

  A. This event would qualify as "Business Disruption and System Failures".
  B. This event would qualify as "Employment Practices and Workplace Safety".
  C. This event would not qualify as an operational risk event.
  D. This event would qualify as "Legal Risk".
  B. This event would qualify as "Employment Practices and Workplace Safety".

• Question 270:

  A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations. These CDOs can be used in a repurchase transaction at a 20% haircut. Starting with $100 worth of CDOs, which one of the following four positions would completely utilize the available leverage?

  A. The trader can buy $100 in CDO's, and repo the CDO's to get back $100, less interest.
  B. The trader can buy $100 in CDO's, and repo the CDO's to get back $80, less interest.
  C. The trader can buy $100 in CDO's, and repo the CDO's to get back $60, plus interest.
  D. The trader can buy $100 in CDO's, and repo the CDO's to get back $20, plus interest.
  B. The trader can buy $100 in CDO's, and repo the CDO's to get back $80, less interest.