GARP GARP Certifications 2016-FRR Questions & Answers

• Question 321:

  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

  Correct Answer: C

• Question 322:

  Which one of the following four statements regarding counterparty credit risk is INCORRECT?

  A. Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.

  B. The exposure at default is variable due to fluctuations in swap valuations.

  C. The exposure at default can be negatively correlated to probability of default.

  D. Dynamic collateral provisions often increase counterparty risk considerably.

  Correct Answer: B

• Question 323:

  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

  Correct Answer: C

• Question 324:

  Which one of the following four mathematical option pricing models is used most widely for pricing European options?

  A. The Black model

  B. The Black-Scholes model

  C. The Garman-Kohlhagen model

  D. The Heston model

  Correct Answer: B

• Question 325:

  Which one of the following four formulas correctly identifies the expected loss for all credit instruments?

  A. Expected Loss = Probability of Default x Loss Given Default x Exposure at Default

  B. Expected Loss = Probability of Default x Loss Given Default + Exposure at Default

  C. Expected Loss = Probability of Default x Loss Given Default - Exposure at Default

  D. Expected Loss = Probability of Default x Loss Given Default / Exposure at Default

  Correct Answer: A

• Question 326:

  Which one of the following four options correctly identifies the core difference between bonds and loans?

  A. These instruments receive a different legal treatment.

  B. These instruments have different pricing drivers.

  C. These instruments cannot be used to estimate credit capital under provisions of the Basel II Accord.

  D. These instruments are subject to different credit counterparty regulations.

  Correct Answer: A

• Question 327:

  Typically, which one of the following four option risk measures will be used to determine the number of options to use to hedge the underlying position?

  A. Vega

  B. Rho

  C. Delta

  D. Theta

  Correct Answer: C

• Question 328:

  What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?

  A. The long term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

  B. The long term rates must rise enough to get some borrowers to borrow long-term and some lenders to lend short-term.

  C. The short term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

  D. The short term rates must fall enough to get some borrowers to borrow long-term and some lenders to lend short-term.

  Correct Answer: A

• Question 329:

  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

  Correct Answer: B

• Question 330:

  Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's expected loss be? What is the expected loss of this loan?

  A. $300

  B. $550

  C. $750

  D. $1,050

  Correct Answer: D