GARP GARP Certifications ICBRR Questions & Answers

• Question 101:

  Which of the activities represent examples of market manipulation?

  A. Market gap

  B. Crowded trades

  C. Short squeeze

  D. Stop-loss order

  Correct Answer: C

• Question 102:

  The data available to estimate the statistical distribution of bank losses is difficult to assemble for which of the following reasons?

  A. The needed data is vast in quantity.

  II. The data requires bringing together significantly different measures of risk.

  III. Some risks are difficult to quantify and hence the data might involve subjective elements.

  B. I, II

  C. I, III

  D. II, III

  E. I, II, III

  Correct Answer: C

• Question 103:

  Bank Milo has $4 million in cash and $5 million in loans coming due tomorrow with an expected default rate of 1%. The proceeds will be deposited overnight. The bank owes $ 9 million on a securities purchase that settles in two days and pays off $8 million in commercial paper in three days that is not expected to renew. On what days does the bank face negative cumulative liquidity?

  A. Day 3 only.

  B. Days 2 and 3.

  C. Day 2 only.

  D. Days 1, 2 and 3.

  Correct Answer: B

• Question 104:

  According to the principles of the Basel II Accord, the implementation and relative weights of the elements of the operational risk framework depend on: A. The culture of the financial institution

  II. Regulatory drivers

  III. Business drivers

  IV. The bank's reporting currency

  B. I, IV

  C. II, III

  D. II, IV

  E. I, II, III

  Correct Answer: D

• Question 105:

  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 106:

  Which of the following statements about endogenous and external types of liquidity are accurate?

  A. Endogenous liquidity is the liquidity inherent in the bank's assets themselves.

  II. External liquidity is the liquidity provided by the bank's liquidity structure to fund its assets and maturing liabilities.

  III. External liquidity is the non-contractual and contingent capital supplied by investors to support the bank in times of liquidity stress.

  IV. Endogenous liquidity is the same as funding liquidity.

  B. I, II

  C. I, III

  D. II, III

  E. I, II, IV

  Correct Answer: B

• Question 107:

  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.

  Correct Answer: B

• Question 108:

  Which of the following statements describes a bank's reasons to set risk limits?

  A. To control and minimize a bank's current risk exposure.

  II. To predict future risks.

  III. To allocate risks to business units.

  IV. To keep risk within tolerance levels.

  B. I and II

  C. III and IV

  D. I, II, and III

  E. I, III, and IV

  Correct Answer: D

• Question 109:

  Which of the following bank events could stress the bank's liquidity position?

  A. Maturing of bank debt

  II. Repurchase agreements

  III. Futures margins

  IV. Staff turnover

  B. I, II

  C. IV

  D. III, IV

  E. I, II and III

  Correct Answer: D

• Question 110:

  Which of the following statements presents an advantage of using risk and control self- assessments (RCSA) in the operational risk framework?

  A. RCSA provides very accurate scoring of risks and controls due to its subjective nature.

  II. RCSA program provides insight into risks that exist in a firm, but that may or may not have occurred before.

  III. RCSA program can produce biased but transparent operational risk reporting.

  IV. RCSA program allows each department to take ownership of its own risks and controls.

  B. I and III

  C. II and IV

  D. I, II and III

  E. II, III, and IV

  Correct Answer: B