GARP GARP Certifications 2016-FRR Questions & Answers

• Question 81:

  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.

  Correct Answer: A

• Question 82:

  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

  Correct Answer: D

• Question 83:

  When operating in a heavily traded currency, a commercial and retail bank's treasury is likely to focus on cover operations. Which one of the following four commercial and retails treasury's operations is known as a cover operation?

  A. Ensuring that the risks generated by the bank's business are mitigated in the market.

  B. Managing the net interest rate risk in the banking book directly with market counterparties by operating a derivatives trading desk.

  C. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer price.

  D. Mitigating liquidity risk, or effectively managing the balance sheet and its funding.

  Correct Answer: A

• Question 84:

  The Treasury function of a bank typically manages all of the following components EXCEPT:

  A. Bank's assets and liabilities

  B. Bank's liquidity

  C. Bank's capital

  D. Bank's performance estimates

  Correct Answer: D

• Question 85:

  Which one of the four following statements about technology systems for managing operational risk event data is incorrect?

  A. Operational risk event databases are always integrated with the other components of the operational risk management program.

  B. Operational risk loss event data collection software can be internally developed.

  C. Operational risk event databases are independent elements of the operational risk management framework.

  D. The implementation of a new operational risk event loss database has to incorporate an analysis of the advantages and disadvantages of external systems.

  Correct Answer: A

• Question 86:

  The main building blocks of an operational risk framework include all of the following options EXCEPT:

  A. Loss data collection

  B. Risk and control self-assessment

  C. Compliance document preparation

  D. Scenario analysis

  Correct Answer: C

• Question 87:

  Which of the following are typical properties of a statistical distribution of potential losses that a bank might sustain over a period of time?

  I. The range of possible losses above the average loss is much greater than those below the average loss.

  II. The loss that is most likely to occur is below the average loss.

  III.

  The loss that is most likely to occur is above the average loss.

  A.

  II

  B.

  I, II

  C.

  I, III

  D.

  III

  Correct Answer: A

• Question 88:

  Which of the following factors are typically included in standard operational risk definitions?

  I. Human errors

  II. Process failure

  III. Systems failure

  IV.

  Unexpected events

  A.

  I and II

  B.

  I and IV

  C.

  II and III

  D.

  I, II and III

  Correct Answer: D

• Question 89:

  Suppose Delta Bank enters into a number of long-term commercial and retail loans at fixed rate prevailing at the time the loans are originated. If the interest rates rise:

  A. The bank will have to pay higher interest rates to its depositors and would have to pay higher rates on its debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to fund the loans was of a shorter maturity than the loans.

  B. The bank will have to pay higher interest rates to its depositors and would have to pay lower rates on its debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to fund the loans was of a shorter maturity than the loans.

  C. The bank will have to pay lower interest rates to its depositors and would have to pay higher rates on its debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to fund the loans was of a shorter maturity than the loans.

  D. The bank will have to pay lower interest rates to its depositors and would have to pay lower rates on its debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to fund the loans was of a shorter maturity than the loans.

  Correct Answer: A

• Question 90:

  BetaFin, a financial services firm, does not have retail branches, but has fixed income, equity, and asset management divisions. Which one of the four following risk and control self-assessment (RCSA) methods fits the firm's operational risk framework the best?

  A. RCSA questionnaire approach

  B. RCSA workshop approach

  C. RCSA loss data approach

  D. RCSA scenario analysis approach

  Correct Answer: B