GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 61:

  Jack Richardson wants to compute the 1-month VaR of a portfolio with a market value of USD 10 million, with an average monthly return of 1% and average monthly standard deviation of 1.5%. What is the portfolio VaR at 99% confidence level?

  Probability Cumulative Normal distribution

  0.90 1.282

  0.91 1.341

  0.92 1.405

  0.93 1.476

  0.94 1.555

  0.95 1.645

  0.96 1.751

  0.97 1.881

  0.98 2.054

  0.99 2.326

  A. 164,500
  B. 232,600
  C. 246,750
  D. 348,900
  D. 348,900

• Question 62:

  What does correlation between two variables measure?

  A. Symmetry of a joint distribution of the two variables.
  B. Association between the two variables and the strength of a possible statistical relationship.
  C. The proportion of variability in one of the variables that is explained by the other.
  D. Extreme returns of both variables.
  B. Association between the two variables and the strength of a possible statistical relationship.

• Question 63:

  Altman's Z-score incorporates all the following variables that are predictive of bankruptcy EXCEPT:

  A. Return on total assets
  B. Sales to total assets
  C. Equity to debt
  D. Return on equity
  D. Return on equity

• Question 64:

  Samuel Teng owns a portfolio of bonds and is trying to compute the convexity of his portfolio. Which of the following choices equals the convexity of Samuel's portfolio?

  A. Minimum of the convexities of the component bonds
  B. Value-weighted average convexity of the component bonds
  C. Coupon-weighted average convexity of the component bonds
  D. Maximum of the convexities of the component bonds
  B. Value-weighted average convexity of the component bonds

• Question 65:

  Most loans and deposits in the interbank market have a maturity of:

  A. More than 10 years
  B. More than 5 years but less than 10 years
  C. More than 3 years but less than 5 years
  D. Less than one year
  D. Less than one year

• Question 66:

  Which one of the following statements correctly identifies risks in foreign exchange forwards?

  A. Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter- country interest rates differentials are significant, and the effect of compounding is large for short periods of time.
  B. Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter- country interest rates differentials are small, and the effect of compounding is small for short periods of time.
  C. Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter- country interest rates differentials are small, and the effect of compounding is large for short periods of time.
  D. Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter- country interest rates differentials are significant, and the effect of compounding is small for short periods of time.
  B. Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter- country interest rates differentials are small, and the effect of compounding is small for short periods of time.

• Question 67:

  For a bank a 1-year VaR of USD 10 million at 95% confidence level means that: A. There is a 5% chance that the bank would lose less than USD 10 million in a year.

  B. There is a 5% chance that the bank would lose more than USD 10 million in a year.
  C. There is a 5% chance that the worst loss would be USD 10 million in a year.
  D. There is a 5% chance that the least loss would be USD 10 million in a year.
  B. There is a 5% chance that the bank would lose more than USD 10 million in a year.

• Question 68:

  Which one of the following statements accurately describes market risk tolerance?

  A. Market risk tolerance is the maximum likely gain in the market value of portfolios over a given period of time.
  B. Market risk tolerance is the maximum loss in the market value of financial instruments caused by the failure of the counterparty to meet its obligations.
  C. Market risk tolerance is the maximum loss the bank is willing to bear due to fluctuations in market prices and rates.
  D. Market risk tolerance is the minimum loss the bank is willing to bear due to fluctuations in market prices and rates.
  C. Market risk tolerance is the maximum loss the bank is willing to bear due to fluctuations in market prices and rates.

• Question 69:

  In the United States, foreign exchange derivative transactions typically occur between

  A. A few large internationally active banks, where the risks become concentrated.
  B. All banks with international branches, where the risks become widely distributed based on trading exposures.
  C. Regional banks with international operations, where the risks depend on the specific derivative transactions.
  D. Thrifts and large commercial banks, where the risks become isolated.
  A. A few large internationally active banks, where the risks become concentrated.

• Question 70:

  James Johnson bought a coupon bond yielding 4.7% for $1,000. Assuming that the price drops to $976 when yield increases to 4.71%, what is the PVBP of the bond.

  A. $26.
  B. $76.
  C. $870.
  D. $976.
  A. $26.