GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 301:

  Which one of the following four statements best describes challenges of delta-normal method of mapping options positions? Delta-normal method understates

  A. Risks of long and short positions for both calls and puts.
  B. Risks of long option positions for puts and overstates risks of short option positions for calls.
  C. Risks of long option positions for calls and overstates risks of short option positions for puts.
  D. Risks of short option positions and overstates risks of long option positions for both calls and puts.
  D. Risks of short option positions and overstates risks of long option positions for both calls and puts.

• Question 302:

  Oliver McCarthy owns a portfolio of bonds. Which of the following choices equals the modified duration of Oliver's portfolio?

  A. Minimum of the modified durations of the component bonds
  B. Value-weighted average modified duration of the component bonds
  C. Coupon-weighted average modified duration of the component bonds
  D. Maximum of the modified durations of component bonds
  B. Value-weighted average modified duration of the component bonds

• Question 303:

  A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss than if the market had remained stable. However, if the market drops, the customer will benefit from the incorrect accounting and gain from this trade. This trading scenario can serve as an example that

  A. Market risk in this transaction can magnify operational risk.
  B. Credit risk in this transaction can magnify operational risk.
  C. Liquidity risk in this transaction can magnify operational risk.
  D. Strategic risk in this transaction can magnify operational risk.
  A. Market risk in this transaction can magnify operational risk.

• Question 304:

  Which one of the following four global markets for financial assets or instruments is widely believed to be the most liquid?

  A. Equity market.
  B. Foreign exchange market.
  C. Fixed income market
  D. Commodities market
  B. Foreign exchange market.

• Question 305:

  10 basis points are equal to:

  A. 10%
  B. 1%
  C. 0.1%
  D. 0.01%
  C. 0.1%

• Question 306:

  Which of the following bank events could stress the bank's liquidity position?

  I. Obligations to fund assets like mortgages

  II. Unusually large depositor withdrawals

  III. Counterparty collateral calls

  IV.

  Nonperforming assets

  A. I, II
  B. IV
  C. III, IV
  D. I, II, III and IV
  I. Obligations to fund assets like mortgages II. Unusually large depositor withdrawals III. Counterparty collateral calls IV. Nonperforming assets
  D. I, II, III and IV

• Question 307:

  Which of the following reports have been suggested by the FDIC that banks should produce in addition to the usual probabilistic analysis and stress tests in order to gauge liquidity issues?

  I. Cash flow gaps

  II. Funding availability

  III.

  Critical assumptions used in credit projections

  A. I, II
  B. I, II, III
  C. I
  D. I, III
  I. Cash flow gaps II. Funding availability III. Critical assumptions used in credit projections
  B. I, II, III

• Question 308:

  Which one of the following four statements regarding the basic Net Interest Income model is INCORRECT?

  A. Assets and liabilities have the same interest rate sensitivities.
  B. Effective repricing date can be different than contractual repricing.
  C. The amount of intermediated funds can be a function of interest rate levels.
  D. Net interest income risk does not address the impact of changing interest rates on bank equity value.
  A. Assets and liabilities have the same interest rate sensitivities.

• Question 309:

  An options trader for a large institutional investor takes a long equity option position. Which of the following risks need to be considered when taking this position?

  I. All the risks of underlying equities

  II. Perceived volatility changes

  III. Future dividends yields

  IV.

  Risk-free interest rates

  A. I, II
  B. II, III
  C. III, IV
  D. I, II, III, IV
  I. All the risks of underlying equities II. Perceived volatility changes III. Future dividends yields IV. Risk-free interest rates
  D. I, II, III, IV

• Question 310:

  The probability of default on a bond is 3%, and in the case of default, investors expect to lose 70% of their investment. The bond's risk premium is 1.9%. The expected loss and the credit spread of the bond are, respectively:

  A. 1.6% and 2.5%.
  B. 2.1% and 3%.
  C. 1.6% and 3.5%.
  D. 2.1% and 4%.
  D. 2.1% and 4%.