GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 51:

  A corporate bond gives a yield of 6%. A same maturity government bond yields 2%. The probability of the corporate bond defaulting is 2.5%. In case of default, investors expect to lose 60% of their investment. The risk premium in the credit spread is:

  A. 1.5%
  B. 4.5%
  C. 2.5%
  D. 0.5%
  C. 2.5%

• Question 52:

  Which one of the following four features is NOT a typical characteristic of futures contracts?

  A. Fixed notional amount per contract
  B. Fixed dates for delivery
  C. Traded Over-the-counter only
  D. Daily margin calls
  C. Traded Over-the-counter only

• Question 53:

  Which one of the four following statements describes a specific characteristic of risk and control self- assessments (RCSA) which distinguishes it from both control assessments and risk and control assessments?

  A. RCSA is conducted by a third party, perhaps audit, compliance or the Sarbanes-Oxley team.
  B. RCSA tests a control's effectiveness against set criteria and issues a pass/fail or level of effectiveness score.
  C. RCSA is subjective by nature.
  D. RCSA includes a risk assessment in addition to a control assessment.
  C. RCSA is subjective by nature.

• Question 54:

  To estimate the price of gold forwards, an investment analyst focuses on the cost of holding physical gold (bullion) and the cost of shorting the same. Given that physical gold spot price is $1,000, the annual risk- free rate is 5%, and the gold lease rate equals 2% annually, the analyst's best estimate of the gold forward price to equal

  A. $950
  B. $1030
  C. $1070
  D. $1100
  B. $1030

• Question 55:

  Bank Sigma has an opportunity to do a securitization deal for a credit card company, but has to retain a portion of the residual risk of the deal with an estimated VaR of $8 MM. Its fees for the deal are $2 MM, and the short-term financing costs are $600,000. What would be the RAROC for this transaction?

  A. 25%
  B. 17.5%
  C. 33%
  D. 12%
  B. 17.5%

• Question 56:

  Forward rate agreements (FRA) are:

  A. Exchange traded derivative contracts that allow banks to take positions in forward interest rates.
  B. OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates by relying on long-term funding.
  C. Exchange traded derivative contracts that allow banks to take positions in future exchange rates.
  D. OTC derivative contracts that allow banks to take positions in forward interest rates.
  D. OTC derivative contracts that allow banks to take positions in forward interest rates.

• Question 57:

  Using the definitions used by JPMorgan Chase in their annual report, which of the following exposure types would be considered as a non-trading risk exposure?

  I. Short term equity investments

  II. Loans held to maturity

  III. Mortgage servicing rights

  IV.

  Derivatives used to manage asset/liability exposure.

  A. I and II
  B. II and III
  C. III and IV
  D. II, III, and IV
  I. Short term equity investments II. Loans held to maturity III. Mortgage servicing rights IV. Derivatives used to manage asset/liability exposure.
  D. II, III, and IV

• Question 58:

  To hedge a foreign exchange exposure on behalf of a client, a small regional bank seeks to enter into an offsetting foreign exchange transaction. It cannot access the large and liquid interbank market open primarily to larger banks. At which one of the following exchanges can the smaller bank trade the currency futures contracts?

  I. The Tokyo Futures Exchange

  II. The Euronext-Liffe Exchange

  III.

  The Chicago Mercantile Exchange

  A. I
  B. III
  C. II, III
  D. I, II, III
  I. The Tokyo Futures Exchange II. The Euronext-Liffe Exchange III. The Chicago Mercantile Exchange
  D. I, II, III

• Question 59:

  Which one of the following four statements about economic capital of a bank is correct?

  A. Economic capital measures how the economy is doing compared to the bank.
  B. Economic capital reflects the possible losses that could occur based on the bank's own estimates of the risks it is taking.
  C. Economic capital is determined by rules imposed by an external authority.
  D. Economic capital is the present value of the earnings generated by the bank in the future.
  B. Economic capital reflects the possible losses that could occur based on the bank's own estimates of the risks it is taking.

• Question 60:

  Which one of the following four options does NOT represent a benefit of compensating balances to the bank?

  A. Compensating balances allow the bank to net some of the exposure they may have in case of default, by taking funds from these specific deposit account one the borrower defaults.
  B. Since the compensating balances cannot be withdrawn at short notice, if at all, they are not considered transaction accounts and are able to provide a stable funding to the bank, reducing its reliance on more volatile external inter-bank based funding sources.
  C. Compensation balances influence the expected loss rate of the bank given the default obligor and improve capital structure by controlling obligor type and avoiding payment delays.
  D. Since the compensating balances reduce the next amount lent to the borrower, the earned return on the loan is increased, further widening the bank's interest rate margin and profitability.
  C. Compensation balances influence the expected loss rate of the bank given the default obligor and improve capital structure by controlling obligor type and avoiding payment delays.