GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 31:

  Which one of the following four exercise features is typical for the most exchange-traded equity options?

  A. Asian exercise feature
  B. American exercise feature
  C. European exercise feature
  D. A shout option exercise feature
  B. American exercise feature

• Question 32:

  When trading exotic options, one needs to consider the following risks:

  I. Spot foreign exchange risks

  II. Forward foreign exchange risks

  III. Plain vanilla options risks

  IV.

  Option-specific risks

  A. I, III
  B. II, III, IV
  C. I, II, IV
  D. I, II, III, IV
  I. Spot foreign exchange risks II. Forward foreign exchange risks III. Plain vanilla options risks IV. Option-specific risks
  D. I, II, III, IV

• Question 33:

  According to Basel II what constitutes Tier 3 capital?

  A. Subordinated debt issues that pay interest.
  B. Debt capital that can only be used to support market risk in the trading book of the bank.
  C. Preference shares that confer on issuers the right to defer payment of a fixed dividend.
  D. Hybrid debt capital instruments that are similar to equity.
  B. Debt capital that can only be used to support market risk in the trading book of the bank.

• Question 34:

  Which one of the following four exotic option types has another option as its underlying asset, and as a result of its construction is generally believed to be very difficult to model?

  A. Spread options
  B. Chooser options
  C. Binary options
  D. Compound options
  D. Compound options

• Question 35:

  Bank Milo has $4 million in cash and $5 million in loans coming due tomorrow with an expected default rate of 1%. The proceeds will be deposited overnight. The bank owes $ 9 million on a securities purchase that settles in two days and pays off $8 million in commercial paper in three days that is not expected to renew. On what days does the bank face negative cumulative liquidity?

  A. Day 3 only.
  B. Days 2 and 3.
  C. Day 2 only.
  D. Days 1, 2 and 3.
  B. Days 2 and 3.

• Question 36:

  Unico Delta stock is trading at $20 per share, its annualized dividend yield is 5% and the 12-month LIBOR is 3%. Given these statistics, the 12-month futures contact will trade at: A. $10.08

  B. $20.04
  C. $30.04
  D. $40.08
  B. $20.04

• Question 37:

  A hedge fund trader buys options to establish an exposure in the currency market, thereby effectively removing the risk of being able to participate in a gapping market. In this case the options premium represents the price paid for eliminating the execution risk of

  A. The delta-hedging strategy.
  B. The gamma-hedging strategy.
  C. The vega-hedging strategy.
  D. The theta-hedging strategy.
  A. The delta-hedging strategy.

• Question 38:

  Which of the following assets on the bank's balance sheet has greatest endogenous liquidity risk?

  A. A 2-year U.S treasury bond
  B. A 1-week corporate loan with a AAA rated company
  C. A 10-year U.S treasury bond
  D. A 3-year subprime mortgage
  D. A 3-year subprime mortgage

• Question 39:

  The Sarbanes-Oxley Act includes one of the following four requirements for financial institutions in the United States:

  A. Risk and control requirements
  B. Market discipline requirements
  C. Capital allocation requirements
  D. Regulatory response to systemic risk requirements
  A. Risk and control requirements

• Question 40:

  AlphaBank's management is evaluating how changes in its business environment could materially impact risk categories. As a result, bank's management decides to implement the structure, which facilitates the discussion in an integrative context, spanning market, credit, and operational risk factors, and encourages transparency and communication between risk disciplines. Which one of the following four approaches should the management choose to achieve this strategic goal?

  A. Regulatory risk management approach
  B. Enterprise risk management approach
  C. Scenario-based risk management approach
  D. Taxonomy-based risk management approach
  B. Enterprise risk management approach