GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 311:

  A large energy company has a recurring foreign currency demands, and seeks to use options with a pay- off based on the average price of the underlying asset on either a few specific chosen dates or all dates within a specific pricing window. Which one of the following four option types would most likely meet these specific foreign currency demands?

  A. American options
  B. European options
  C. Asian options
  D. Chooser options
  C. Asian options

• Question 312:

  According to Basel II what constitutes Tier 2 capital?

  A. Debt that is not subordinated to equity and innovative capital products that would count as Tier 1 capital and excluding perpetual non-cumulative preference shares.
  B. Debt that is subordinate to equity.
  C. Equity capital and debt together.
  D. Core capital excluding undisclosed reserves and general reserves that the bank may make against its expected loan losses.
  A. Debt that is not subordinated to equity and innovative capital products that would count as Tier 1 capital and excluding perpetual non-cumulative preference shares.

• Question 313:

  Which one of the following four statements represents the advantages of the historical sim-ulation method when calculating VaR?

  A. Solve the problem caused by incorrectly assuming that asset returns are normally distributed.
  B. Rely on current market data to describe the distribution of returns and determine volatilities.
  C. Are believed to be superior in accuracy predicting future levels of realized volatility.
  D. Are only using loss probabilities that can be found in tables of the standard normal distribution.
  A. Solve the problem caused by incorrectly assuming that asset returns are normally distributed.

• Question 314:

  Which one of the following four statements presents a challenge of using external loss databases in the operational risk framework?

  A. Use of benchmarked data reflects similar data collection standards.
  B. External events are usually not of interest to senior management.
  C. If the external data is gathered from news sources, it may only reflect events that are interesting to the press.
  D. They provide a source of data on what operational loss events will occur.
  C. If the external data is gathered from news sources, it may only reflect events that are interesting to the press.

• Question 315:

  Which of the following factors would typically increase the credit spread?

  I. Increase in the probability of default of the issuer.

  II. Decrease in risk premium.

  III. Decrease in loss given default of the issuer.

  IV.

  Increase in expected loss.

  A. I
  B. II and III
  C. I and IV
  D. I, II, and IV
  I. Increase in the probability of default of the issuer. II. Decrease in risk premium. III. Decrease in loss given default of the issuer. IV. Increase in expected loss.
  C. I and IV

• Question 316:

  Which of the following correctly identifies reasons for collecting internal operational risk event and loss information?

  I. Assessing the risk of specific areas of concern.

  II. Evaluating risk events and outcomes.

  III. Collecting data for capital modeling.

  IV.

  Getting insight into risk events in other firms in the industry.

  A. I and II
  B. II and III
  C. I, II and III
  D. II, III, and IV
  I. Assessing the risk of specific areas of concern. II. Evaluating risk events and outcomes. III. Collecting data for capital modeling. IV. Getting insight into risk events in other firms in the industry.
  C. I, II and III

• Question 317:

  Which one of the following four statements about market risk is correct? Market risk is

  A. The exposure to an adverse change in the credit quality in portfolios or of financial instruments.
  B. The maximum likely loss in the market value of portfolios and financial instruments over a given period of time.
  C. The maximum likely loss in the market value of portfolios and financial instruments caused by the failure of the counterparty to meet its obligations.
  D. The exposure to an adverse change in the market value of portfolios and financial instruments caused by a change in market prices or rates.
  D. The exposure to an adverse change in the market value of portfolios and financial instruments caused by a change in market prices or rates.

• Question 318:

  Which one of the following four statements on the seniority of corporate bonds is incorrect?

  A. Senior bonds typically have lower credit spreads than junior bonds with the same maturity and payment characteristics.
  B. Seniority refers to the priority of a bond in bankruptcy.
  C. Junior bonds always pay higher coupons than subordinated bonds.
  D. In bankruptcy, holders of senior bonds are paid in full before any holders of subordinated bonds receive payment.
  C. Junior bonds always pay higher coupons than subordinated bonds.

• Question 319:

  Bank Alpha is making a decision about lending 10-year loans in a sector that is fairly illiquid and is looking at various options to fund the loans. Which of the following options to fund the loans exhibits the most exogenous liquidity risk?

  A. Overnight interbank markets
  B. The 6-month LIBOR markets
  C. The 1-year treasury markets
  D. Foreign exchange markets
  A. Overnight interbank markets

• Question 320:

  A bank customer can use either a plain vanilla option or an option contract with volumetric flexibility to reduce the following risks:

  I. Market Risk

  II. Basis Risk

  III.

  Operational Risk

  A. I
  B. II
  C. I, II
  D. II, III
  I. Market Risk II. Basis Risk III. Operational Risk
  C. I, II