GARP 2016-FRR Online Practice Questions and Exam Preparation

GARP 2016-FRR Online Questions & Answers

• Question 71:

  Mega Bank holds a $250 million mortgage loan portfolio, which reprices every 5 years at LIBOR + 10%. The bank also has $150 million in deposits that reprices every month at LIBOR + 3%. What is the amount of Mega Bank's rate sensitive assets?

  A. $100 million
  B. $150 million
  C. $200 million
  D. $250 million
  D. $250 million

• Question 72:

  To hedge equity exposure without buying or selling shares of stock or otherwise rebalancing the portfolio, a risk manager could initiate

  A. A short total return swap position.
  B. A long total return swap position.
  C. A short debt-for-equity swap.
  D. A long debt-for-equity swap.
  A. A short total return swap position.

• Question 73:

  Which one of the following statements regarding collateralized mortgage obligations (CMO) is incorrect?

  A. CMOs have senior tranches which are considered short-term, low-risk instruments by banks
  B. CMOs are asset-backed securities that have pools of collateralized debt obligations (CDOs) as underlying collateral.
  C. CMOs are generally less risky investment than CDOs.
  D. CMOs are pools of mortgages that are divided according to the timing of cash flows.
  B. CMOs are asset-backed securities that have pools of collateralized debt obligations (CDOs) as underlying collateral.

• Question 74:

  Interest rate swaps are:

  A. Exchange traded derivative contracts that allow banks to take positions in future interest rates.
  B. OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without relying on long-term funding.
  C. Exchange traded derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.
  D. OTC derivative contracts that allow banks to take positions in series of future exchange rates.
  B. OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without relying on long-term funding.

• Question 75:

  Bank G has a 1-year VaR of USD 20 million at 99% confidence level while bank H has a 1-year VaR of USD 10 million at the same confidence level. Which bank is in a more risky position as measured by VaR?

  A. Bank H is taking twice the risk of bank G as measured by VaR.
  B. Bank G is taking twice the risk of bank H as measured by VaR.
  C. Since the confidence levels are the same we cannot make any conclusions.
  D. Both banks are equally risky since the measurements are with the same confidence level.
  B. Bank G is taking twice the risk of bank H as measured by VaR.

• Question 76:

  Which of the following measure describes the symmetry of a statistical distribution?

  A. Mean
  B. Standard deviation
  C. Skewness
  D. Kurtosis
  C. Skewness

• Question 77:

  Which one of the following statements describes Macauley's duration?

  A. The change in value of a bond when yields increase by 1 basis point.
  B. The weighted average life of the bond payments.
  C. The present value of the future cash flows of a bond calculated at a yield equal to 1%.
  D. The percentage change in a bond price when the yields change by 1%.
  B. The weighted average life of the bond payments.

• Question 78:

  Why is economic capital across market, credit and operational risks simply added up to arrive at an estimate of aggregate economic capital in practice?

  A. Market, credit and operational risks are perfectly correlated which justifies adding up their associated economic capital.
  B. In practice, it is very difficult to estimate the correlations between the risk categories and as a result a conservative estimate is obtained by adding up the risks.
  C. Regulators require banks to add up economic capital across market, credit and operational risks.
  D. Since market, credit and operational risks are significantly different measures of risk, there is no diversification benefit to computing economic capital to banks across types of risks.
  B. In practice, it is very difficult to estimate the correlations between the risk categories and as a result a conservative estimate is obtained by adding up the risks.

• Question 79:

  Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a foreign exchange option?

  A. Underlying exchange rates
  B. Underlying interest rates
  C. Discrete future stock prices
  D. Option exercise price
  C. Discrete future stock prices

• Question 80:

  James Johnson purchased a plain vanilla bond that has modified duration of 10 and convexity of 0.5. If yields increase by 1%, its modified duration is expected to

  A. increase by 0.5.
  B. increase by 1.5.
  C. decrease by 0.5.
  D. decrease by 1.5.
  C. decrease by 0.5.