GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 321:

  According to Basel II what constitutes Tier 1 capital?

  A. Equity capital and core capital
  B. Profits to reserves and innovative Tier 1 capital
  C. Equity capital and accrued profits to reserves
  D. Core capital and innovative Tier 1 capital.
  D. Core capital and innovative Tier 1 capital.

• Question 322:

  An asset and liability manager for a large financial institution has to recognize that retail products ___ include embedded options, which are often not rationally exercised, while wholesale products ___ carry penalties for repayment or include rights to terminate wholesale contracts on very different terms than are common in retail products.

  A. Frequently; typically
  B. Hardly ever; typically
  C. Frequently; rarely
  D. Hardly ever; rarely
  A. Frequently; typically

• Question 323:

  A risk associate evaluating his current portfolio of assets and liabilities wants to determine how sensitive this portfolio is to changes in interest rates. Which one of the following four metrics is typically used for this purpose?

  A. Modified duration
  B. Duration of default
  C. Effective duration
  D. Macaulay duration
  A. Modified duration

• Question 324:

  Which one of the following four statements correctly defines chooser options?

  A. The owner of these options decides if the option is a call or put option only when a predetermined date is reached.
  B. These options represent a variation of the plain vanilla option where the underlying asset is a basket of currencies.
  C. These options pay an amount equal to the power of the value of the underlying asset above the strike price.
  D. These options give the holder the right to exchange one asset for another.
  A. The owner of these options decides if the option is a call or put option only when a predetermined date is reached.

• Question 325:

  Modified duration of a bond measures:

  A. The change in value of a bond when yields increase by 1 basis point.
  B. The percentage change in a bond price when yields increase by 1 basis point.
  C. The present value of the future cash flows of a bond calculated at a yield equal to 1%.
  D. The percentage change in a bond price when the yields change by 1%.
  D. The percentage change in a bond price when the yields change by 1%.

• Question 326:

  Which one of the four following non-statistical risk measures are typically not used to quantify market risk?

  A. Option sensitivities
  B. Net closed positions
  C. Convexity
  D. Basis point values
  B. Net closed positions

• Question 327:

  ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies has an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, what would be the probability of a cumulative $40 million loss from these two mortgage borrowers?

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

• Question 328:

  Which one of the four following statements regarding foreign exchange (FX) swap transactions is INCORRECT?

  A. FX swap is a common short-term transaction.
  B. FX swap is normally used for hedging various currency positions.
  C. FX swap generates more exchange rate risk than simple forward transactions.
  D. FX swap is generally used to for funding foreign currency balances and currency speculation.
  C. FX swap generates more exchange rate risk than simple forward transactions.

• Question 329:

  To achieve leverage in long positions, a bank can use the following strategy:

  I. Securities may be purchased with borrowed funds using a bank loan from the broker.

  II. Securities may be borrowed on margin by taking a loan from a broker.

  III. Securities may be purchased and used in a repo transaction to generate cash for further security purchases.

  IV.

  The bank may enter into a derivative transaction, such as a total return swap, that requires little to no collateral but mimics the performance of a long or short position in the underlying instrument.

  A. I, II
  B. I, III
  C. II, IV
  D. I, II, III, IV
  I. Securities may be purchased with borrowed funds using a bank loan from the broker. II. Securities may be borrowed on margin by taking a loan from a broker. III. Securities may be purchased and used in a repo transaction to generate cash for further security purchases. IV. The bank may enter into a derivative transaction, such as a total return swap, that requires little to no collateral but mimics the performance of a long or short position in the underlying instrument.
  D. I, II, III, IV

• Question 330:

  A risk manager analyzes a long position with a USD 10 million value. To hedge the portfolio, it seeks to use options that decrease JPY 0.50 in value for every JPY 1 increase in the long position. At first approximation, what is the overall exposure to USD depreciation?

  A. His overall portfolio has the same exposure to USD as a portfolio that is long USD 5 million.
  B. His overall portfolio has the same exposure to USD as a portfolio that is long USD 10 million.
  C. His overall portfolio has the same exposure to USD as a portfolio that is short USD 5 million.
  D. His overall portfolio has the same exposure to USD as a portfolio that is short USD 10 million.
  A. His overall portfolio has the same exposure to USD as a portfolio that is long USD 5 million.