GARP GARP Certifications ICBRR Questions & Answers

• Question 91:

  Which of the following statements are reasons for mathematical valuation and risk assessment models to be misleading or inaccurate?

  A. There could be missing factors in models.

  II. The data used as input for the model could be bad or wrong.

  III. Model results could be misinterpreted.

  IV. There could be errors in the derivation of the model.

  B. I, II, III IV

  C. III and IV

  D. I, II, and III

  E. I, III, and IV

  Correct Answer: A

• Question 92:

  A key function of treasuries in commercial/retail banks is:

  A. To manage the interest margin of the banks.

  II. To focus on underwriting risk.

  III. To ensure strong earnings.

  IV. To increase profit margins.

  B. I

  C. II

  D. II, III

  E. III, IV

  Correct Answer: A

• Question 93:

  Financial regulators in a European country are considering banning trading in highly complex derivative

  instruments that are not settled through a centralized clearinghouse.

  This ban can result in:

  A. The value of the country's currency dropping

  II. Counterparties involved in trading of these derivative instruments failing to fulfill their obligations

  III. The business model relying on these instruments failing IV. Certain activities becoming illegal

  B. I, II

  C. II, III

  D. I, IV

  E. II, III, IV

  Correct Answer: D

• Question 94:

  Suppose that a regulator deems all corporate debt to have the same risk level. Which of the following behavior of banks would be an example of regulatory arbitrage?

  A. Banks increase their exposure to corporate debt.

  B. Banks decrease their exposure to corporate debt.

  C. Banks shift their exposure to more risky corporate debt.

  D. Banks shift their exposure to less risky corporate debt.

  Correct Answer: C

• Question 95:

  Which one of the following four examples would not be considered a typical source of market risk?

  A. Unexpected changes in the term structure of interest rates.

  B. The JPY depreciating against the USD.

  C. Increased default rate on commercial mortgages due to higher interest rates.

  D. Changes in the oil price due to the discovery of new oil fields.

  Correct Answer: C

• Question 96:

  Which of the following attributes of duration gap model typically cause criticism?

  A. Basis risk

  II. Errors in the linear model

  III. Costs of immunization

  IV. Constant nature of calculation

  B. I, II

  C. II, III, IV

  D. I, II, III

  E. I, III, IV

  Correct Answer: C

• Question 97:

  Which one of the four following aspects of legal risk is NOT included in the Basel II Accord?

  A. Exposure to fines

  B. Private settlements

  C. Punitive damages resulting from supervisory actions

  D. Negative publicity resulting from reputational damages

  Correct Answer: D

• Question 98:

  US based Alpha Bank holds European corporate bonds and US inflation璱ndexed Treasury notes in its investment portfolio. This investment portfolio is not exposed to changes in which of the following?

  A. Foreign exchange rates

  B. Credit spread on the corporate bonds

  C. Equity values

  D. European interest rates

  Correct Answer: C

• Question 99:

  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 100:

  In its VaR calculations, JPMorgan Chase uses an expected tail-loss methodology which approximates losses at the 99% confidence level. This methodology consists of two subsequent steps to estimate the VaR. Which of the following explains this two-step methodology?

  A. After VaR is computed at the 97% confidence level, the expected tail loss in excess of that confidence level is determined, which is then compared with the VaR estimate at the 99% confidence level.

  B. After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence level is determined, which is then compared with the VaR estimate at the 98% confidence level.

  C. After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence level is determined, which is then compared with the VaR estimate at the 99% confidence level.

  D. After VaR is computed at the 1% confidence level, the expected tail loss in excess of that confidence level is determined, which and is then compared with the VaR estimate at the 98% confidence level.

  Correct Answer: A