GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 281:

  Banks duration match their assets and liabilities to manage their interest risk in their banking book. A bank has $100 million in interest rate sensitive assets and $100 million in interest rate sensitive liabilities. Currently the bank's assets have a duration of 5 and its liabilities have a duration of 2. The asset-liability management committee of the bank is in the process of duration-matching. Which of the following actions would best match the durations?

  A. Increase the duration of liabilities by 2 and increase the duration of assets by 1.
  B. Increase the duration of liabilities by 2 and decrease the duration of assets by 1.
  C. Decrease the duration of liabilities by 1 and increase the duration of assets by 1.
  D. Decrease the duration of liabilities by 1 and decrease the duration of assets by 1.
  B. Increase the duration of liabilities by 2 and decrease the duration of assets by 1.

• Question 282:

  Which of the following statements regarding collateralized debt obligations (CDOs) is correct?

  I. CDOs typically have loans or bonds as underlying collateral.

  II. CDOs generally less risky than CMOs.

  III.

  There is a correlation among defaults in the CDO collateral which should be considered in valuation of these complex instruments.

  A. I only
  B. I and III
  C. II and III
  D. I, II, and III
  I. CDOs typically have loans or bonds as underlying collateral. II. CDOs generally less risky than CMOs. III. There is a correlation among defaults in the CDO collateral which should be considered in valuation of these complex instruments.
  B. I and III

• Question 283:

  Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions in banks?

  A. Derivative
  B. Bond
  C. Cash
  D. Basis
  C. Cash

• Question 284:

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

• Question 285:

  A corporate bond was trading with 2%probability of default and 60% loss given default. Due to the credit crisis the probability of default increased to 10% and the loss given default increased to 100%. Assuming that the risk premium remained the same how did the credit spread change?

  A. Increased by 1120 basis points
  B. Increased by 880 basis points
  C. Increased by 1000 basis points
  D. Decreased by 880 basis points
  B. Increased by 880 basis points

• Question 286:

  Which of the following statements presents an advantage of using risk and control self-assessments (RCSA) in the operational risk framework?

  I. RCSA provides very accurate scoring of risks and controls due to its subjective nature.

  II. RCSA program provides insight into risks that exist in a firm, but that may or may not have occurred before.

  III. RCSA program can produce biased but transparent operational risk reporting.

  IV.

  RCSA program allows each department to take ownership of its own risks and controls.

  A. I and III
  B. II and IV
  C. I, II and III
  D. II, III, and IV
  I. RCSA provides very accurate scoring of risks and controls due to its subjective nature. II. RCSA program provides insight into risks that exist in a firm, but that may or may not have occurred before. III. RCSA program can produce biased but transparent operational risk reporting. IV. RCSA program allows each department to take ownership of its own risks and controls.
  B. II and IV

• Question 287:

  The retail banking business of BankGamma has an expected P and L of $50 million and a VaR of $100 million. The bank seeks to diversify its revenue, and is considering the opportunity to acquire a credit card business with an expected P and L of $50 million and a VaR of $150 million. What will be the overall RAROC if the bank acquires the new business?

  A. 33.3%.
  B. 50%.
  C. 58%.
  D. 72%.
  C. 58%.

• Question 288:

  If a bank is long £500 million pounds, short £300 million in delta-equivalent pound options, and long £100 million in pound-denominated stocks, what is the amount of pound exposure that would be shown in the aggregated risk reports?

  A. £300 million pounds
  B. £500 million pounds
  C. £800 million pounds
  D. £900 million pounds
  A. £300 million pounds

• Question 289:

  A bank customer chooses a mortgage with low initial payments and payments that increase over time because the customer knows that she will have trouble making payments in the early years of the loan. The bank makes this type of mortgage with the same default assumptions uses for ordinary mortgages, thus underestimating the risk of default and becoming exposed to:

  A. Moral hazard
  B. Adverse selection
  C. Banking speculation
  D. Sampling bias
  B. Adverse selection

• Question 290:

  After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ return on equity for the bank, because the cash generated by the risk-transfer and the overall ___ of the bank's exposure to the risk.

  A. Increases; increase;
  B. Increases; reduction;
  C. Decreases; increase;
  D. Decreases; reduction;
  B. Increases; reduction;