GARP Financial Risk and Regulation 2016-FRR Questions & Answers

• Question 331:

  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

  Correct Answer: A

• Question 332:

  According to a Moody's study, the most important drivers of the loss given default historically have been all of the following EXCEPT:

  I. Debt type and seniority

  II. Macroeconomic environment

  III. Obligor asset type

  IV.

  Recourse

  A.

  I

  B.

  II

  C.

  I, II

  D.

  III, IV

  Correct Answer: D

• Question 333:

  To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a credit portfolio manager should use the following metric:

  A. Credit VaR

  B. Expected loss

  C. Unexpected loss

  D. Factor sensitivity

  Correct Answer: B

• Question 334:

  Of all the risk factors in loan pricing, which one of the following four choices is likely to be the least significant?

  A. Probability of default

  B. Duration of default

  C. Loss given default

  D. Exposure at default

  Correct Answer: B

• Question 335:

  In the United States, during the second quarter of 2009, transactions in foreign exchange derivative contracts comprised approximately what proportion of all types of derivative transactions between financial institutions?

  A. 2%

  B. 7%

  C. 25%

  D. 43%

  Correct Answer: B

• Question 336:

  Which one of the following four model types would assign an obligor to an obligor class based on the risk characteristics of the borrower at the time the loan was originated and estimate the default probability based on the past default rate of the members of that particular class?

  A. Dynamic models

  B. Causal models

  C. Historical frequency models

  D. Credit rating models

  Correct Answer: C

• Question 337:

  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.

  Correct Answer: A

• Question 338:

  Which one of the following four metrics represents the difference between the expected loss and unexpected loss on a credit portfolio?

  A. Credit VaR

  B. Probability of default

  C. Loss given default

  D. Modified duration

  Correct Answer: A

• Question 339:

  For which one of the following four reasons do corporate customers use foreign exchange derivatives?

  I. To lock in the current value of foreign-denominated receivables

  II. To lock in the current value of foreign-denominated payables

  III. To lock in the value of expected future foreign-denominated receivables

  IV.

  To lock in the value of expected future foreign-denominated payables

  A.

  II

  B.

  I and IV

  C.

  II and III

  D.

  I, II, III, IV

  Correct Answer: D

• Question 340:

  Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. 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 exposure at default (EAD) be?

  A. $25,000

  B. $50,000

  C. $75,000

  D. $105,000

  Correct Answer: B