GARP GARP Certifications 2016-FRR Questions & Answers

• Question 281:

  All of the four following exotic options are path-independent options, EXCEPT:

  A. Chooser options

  B. Power options

  C. Asian options

  D. Basket options

  Correct Answer: C

• Question 282:

  By lowering the spread on lower credit quality borrowers, the bank will typically achieve all of the following outcomes EXCEPT:

  A. Aggressively courting of new business

  B. Lower probability of default

  C. Rapid growth

  D. Higher losses in case of default

  Correct Answer: B

• Question 283:

  To estimate the interest charges on the loan, an analyst should use one of the following four formulas:

  A. Loan interest = Risk-free rate - Probability of default x Loss given default + Spread

  B. Loan interest = Risk-free rate + Probability of default x Loss given default + Spread

  C. Loan interest = Risk-free rate - Probability of default x Loss given default - Spread

  D. Loan interest = Risk-free rate + Probability of default x Loss given default - Spread

  Correct Answer: B

• Question 284:

  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

  Correct Answer: B

• Question 285:

  The pricing of credit default swaps is a function of all of the following EXCEPT:

  A. Probability of default

  B. Duration

  C. Loss given default

  D. Market spreads

  Correct Answer: B

• Question 286:

  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

  Correct Answer: C

• Question 287:

  A credit rating analyst wants to determine the expected duration of the default time for a new three-year loan, which has a 2% likelihood of defaulting in the first year, a 3% likelihood of defaulting in the second year, and a 5% likelihood of defaulting the third year. What is the expected duration for this three-year loan?

  A. 1.5 years

  B. 2.1 years

  C. 2.3 years

  D. 3.7 years

  Correct Answer: C

• Question 288:

  Which one of the following four features is NOT a typical characteristic of futures contracts?

  A. Fixed notional amount per contract

  B. Fixed dates for delivery

  C. Traded Over-the-counter only

  D. Daily margin calls

  Correct Answer: C

• Question 289:

  In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the entire trading day. Which of the following factors would most likely affect foreign exchange option values?

  I. Change in the value of the underlying

  II. Change in the perception of future volatility

  III. Change in interest rates

  IV.

  Passage of time

  A.

  I, II

  B.

  I, II, III

  C.

  II, III

  D.

  I, II, III, IV

  Correct Answer: D

• Question 290:

  An options trader is assessing the aggregate risk of her currency options exposures. As an options buyer, she can potentially ___ lose more than the premium originally paid. As an option seller, however, she has a ___ risk on the contract and always receives a premium.

  A. Never, unlimited

  B. Sometimes, unlimited

  C. Never, limited

  D. Sometimes, limited

  Correct Answer: A