GARP GARP Certifications ICBRR Questions & Answers

• Question 111:

  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 112:

  Mega Bank has $100 million in deposits on which it pays 3% interest, and $20 million in equity on which it pays no interest. The loan portfolio of $120 million earns an average rate of 10%. If the rates remain the same and Mega Bank is able to earn the same net interest income in perpetuity at a 5% discount rate, what will the present value of this holding be?

  A. $100 million

  B. $150 million

  C. $180 million

  D. $200 million

  Correct Answer: C

• Question 113:

  Which one of the following four statements correctly identifies the Basel II Accord's definition of operational risk?

  A. Operational risk is all the risk that is not captured by market and credit risks.

  B. Operational risk is the risk of loss resulting from inadequate or failed processes, people and systems or from external events.

  C. Operational risk is a risk arising from execution of a company's business functions.

  D. Operational risk is a form of risk that summarizes the risks a company or firm undertakes when it attempts to operate within a given field or industry.

  Correct Answer: B

• Question 114:

  A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian dollars and sell Brazilian reals. Alpha bank does not hold Brazilian reals so it asks for a quote to buy Brazilian reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer, sells the reals, and receives AUD 1,010,000. To perform foreign exchange matched position trading, the banks should

  A. Immediately buy the real at the market rate of 100 and pay AUD 1,000,000.

  B. Immediately buy the real above the market rate of 105 and pay AUD 1,050,050.

  C. Immediately sell the real at the market rate of 100 and receive AUD 1,000,000.

  D. Immediately sell the real above the market rate of 105 and receive AUD 1,050,050.

  Correct Answer: A

• Question 115:

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

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

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

  III. Exogenous 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: A

• Question 116:

  Which one of the four following statements about the Risk Adjusted Return on Capital (RAROC) is correct?

  RAROC is the ratio of:

  A. Risk to the profitability of a trading portfolio or a business unit within the bank.

  B. Value-at-risk to the profitability of a trading portfolio or a business unit.

  C. Profitability to the expected return of a trading portfolio or bank business unit.

  D. Profitability to the risk of a trading portfolio or bank business unit.

  Correct Answer: D

• Question 117:

  Which of the following are conclusions that could be drawn from the shape of the statistical distribution of losses that a bank might incur over a future time period?

  A. In most years a bank would look more profitable than it will be on average.

  II. Most of the time a sufficiently well capitalized bank will appear over-capitalized.

  III. Bad years do not come along very often, but when they do they lead to enormous losses.

  B. I, II

  C. I, III

  D. II, III

  E. I, II, III

  Correct Answer: D

• Question 118:

  As an example of the balance sheet effect, if rates rise, Delta Bank can expect:

  A. Its fixed rate assets to increase in value, although that effect will be offset by a reduction in the value of its fixed rate liabilities.

  B. Its fixed rate assets to drop in value, although that effect will be offset by a reduction in the value of its fixed rate liabilities.

  C. Its fixed rate assets to increase in value, while that effect will be amplified by a reduction in the value of its fixed rate liabilities.

  D. Its fixed rate assets to drop in value, while that effect will be amplified by a reduction in the value of its fixed rate liabilities.

  Correct Answer: B

• Question 119:

  Which one of the following four statements about market risk is correct? Market risk is

  A. The exposure to an adverse change in the credit quality in portfolios or of financial instruments.

  B. The maximum likely loss in the market value of portfolios and financial instruments over a given period of time.

  C. The maximum likely loss in the market value of portfolios and financial instruments caused by the failure of the counterparty to meet its obligations.

  D. The exposure to an adverse change in the market value of portfolios and financial instruments caused by a change in market prices or rates.

  Correct Answer: D

• Question 120:

  Asset and liability management is typically concerned with all of the following activities:

  A. Maintaining the desired liquidity structure of the bank.

  II. Managing the factors affecting the structure and composition of a bank's balance sheet.

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

  IV. Focusing on the circumstances impacting the stability of income the bank generates over time.

  B. I

  C. II, III

  D. III, IV

  E. I, II, IV

  Correct Answer: D