GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 21:

  Financial regulators in a European country are considering banning trading in highly complex derivative instruments that are not settled through a centralized clearinghouse. This ban can result in:

  I. The value of the country's currency dropping

  II. Counterparties involved in trading of these derivative instruments failing to fulfill their obligations III.The business model relying on these instruments failing

  IV.

  Certain activities becoming illegal

  A. I, II
  B. II, III
  C. I, IV
  D. II, III, IV
  I. The value of the country's currency dropping II. Counterparties involved in trading of these derivative instruments failing to fulfill their obligations III.The business model relying on these instruments failing IV. Certain activities becoming illegal
  D. II, III, IV

• Question 22:

  A credit analyst wants to determine if her bank is taking too much credit risk. Which one of the following four strategies will typically provide the most convenient approach to quantify the credit risk exposure for the bank?

  A. Assessing aggregate exposure at default at various time points and at various confidence levels
  B. Simplifying individual credit exposures so that they can be combined into a simplified expression of portfolio risk for the bank
  C. Using stress testing techniques to forecast underlying macroeconomic factors and bank's idiosyncratic risks
  D. Analyzing distribution of bank's credit losses and mapping credit risks at various statistical levels
  A. Assessing aggregate exposure at default at various time points and at various confidence levels

• Question 23:

  According to the largest global poll of foreign exchange market participants, which one of the following four global financial institutions was the most active participant in the global foreign exchange market?

  A. Citibank
  B. UBS AG
  C. Deutsche Bank
  D. Barclays Capital
  C. Deutsche Bank

• Question 24:

  US based Alpha Bank holds European corporate bonds and US inflationndexed Treasury notes in its investment portfolio. This investment portfolio is not exposed to changes in which of the following?

  A. Foreign exchange rates
  B. Credit spread on the corporate bonds
  C. Equity values
  D. European interest rates
  C. Equity values

• Question 25:

  Which one of the following four statements correctly identifies the Basel II Accord's definition of operational risk?

  A. Operational risk is all the risk that is not captured by market and credit risks.
  B. Operational risk is the risk of loss resulting from inadequate or failed processes, people and systems or from external events.
  C. Operational risk is a risk arising from execution of a company's business functions.
  D. Operational risk is a form of risk that summarizes the risks a company or firm undertakes when it attempts to operate within a given field or industry.
  B. Operational risk is the risk of loss resulting from inadequate or failed processes, people and systems or from external events.

• Question 26:

  The Treasury function of a bank typically manages all of the following components EXCEPT:

  A. Bank's assets and liabilities
  B. Bank's liquidity
  C. Bank's capital
  D. Bank's performance estimates
  D. Bank's performance estimates

• Question 27:

  Which of the following statements explain how securitization makes the retail assets highly liquid and the balance sheet easier to manage?

  I. By securitizing assets any lack of capital can be accommodated by selling the securitized bonds.

  II. Any need to diversify credit risk can be achieved by selling bank's own securitized bonds and buying other bonds that increase diversification.

  III.

  Securitization could be used to promote hedging by using limited market instruments.

  A. I, II
  B. I, II, III
  C. II, III
  D. II
  I. By securitizing assets any lack of capital can be accommodated by selling the securitized bonds. II. Any need to diversify credit risk can be achieved by selling bank's own securitized bonds and buying other bonds that increase diversification. III. Securitization could be used to promote hedging by using limited market instruments.
  A. I, II

• Question 28:

  Which of the following statements represents a methodological difference between variance-covariance and full revaluation methods?

  A. Variance-covariance approach provides computational advantages over the full revaluation approach.
  B. Variance-covariance approach computes the VAR for each position separately, while the full revaluation method computes the VAR on a portfolio basis.
  C. Variance-covariance approach prices positions more accurately than the full revaluation approach.
  D. Variance-covariance approach uses only historic data to compute the covariance matrix.
  A. Variance-covariance approach provides computational advantages over the full revaluation approach.

• Question 29:

  Which one of the four following statements about back testing the VaR models is correct? Back testing requires

  A. Plotting VaR forecasts against the proportion of daily losses exceeding the average loss.
  B. Comparing the predictive ability of VaR on a daily basis to the realized daily profits and losses.
  C. Plotting the daily profit and losses along with the ranges predicted by VaR models
  D. Determining the proportion of daily profits exceeding those predicted by VaR.
  B. Comparing the predictive ability of VaR on a daily basis to the realized daily profits and losses.

• Question 30:

  Which one of the following four options is NOT a typical component of a currency swap?

  A. An initial currency exchange of the notional amount
  B. Denomination of the original notional amount into a foreign currency
  C. Periodic exchange of interest payments in different currencies
  D. A final currency exchange
  B. Denomination of the original notional amount into a foreign currency