GARP GARP Certifications ICBRR Questions & Answers

• Question 121:

  Which one of the following four statements regarding the current value of a transaction and its purposes is INCORRECT?

  A. For cash settled instrument the final market value is used to settle the transaction with the counterparty

  B. Profit and loss calculations are made by comparing the current values to the intrinsic values.

  C. Margin call by futures exchanges are based on the current market value.

  D. Counterparty credit risk calculations are made by analyzing the current values of all deals with the same counterparty.

  Correct Answer: B

• Question 122:

  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.

  Correct Answer: B

• Question 123:

  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 reals so it asks for aquote to buy Brazilian reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer and sells the real at this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange matched transaction. What is the impact of this transaction on the bank's risk profile?

  A. This transaction eliminates credit risk.

  B. This transaction eliminates counterparty risk.

  C. This transaction eliminates market risk.

  D. This transaction eliminates operational risk.

  Correct Answer: C

• Question 124:

  Nijenhaus Bruch is currently creating a program of operational loss data collection at a bank with a large branch network. Which minimal data standards should this collection approach include to meet minimum loss data collecting standards?

  A. Reports should only include the actual loss date.

  B. Reports should capture both the date of the event and the amount of loss.

  C. Reports should capture the date of the event, the amount of loss, and recoveries of gross loss amounts.

  D. Reports should be designed to be shared with external data loss consortia recipients.

  Correct Answer: C

• Question 125:

  For a bank a 1-year VaR of USD 10 million at 95% confidence level means that:

  A. There is a 5% chance that the bank would lose less than USD 10 million in a year.

  B. There is a 5% chance that the bank would lose more than USD 10 million in a year.

  C. There is a 5% chance that the worst loss would be USD 10 million in a year.

  D. There is a 5% chance that the least loss would be USD 10 million in a year.

  Correct Answer: B

• Question 126:

  Which of the following correctly identifies reasons for collecting internal operational risk event and loss information?

  A. Assessing the risk of specific areas of concern.

  II. Evaluating risk events and outcomes.

  III. Collecting data for capital modeling.

  IV. Getting insight into risk events in other firms in the industry.

  B. I and II

  C. II and III

  D. I, II and III

  E. II, III, and IV

  Correct Answer: C

• Question 127:

  According to Basel II what constitutes Tier 2 capital?

  A. Debt that is not subordinated to equity and innovative capital products that would count as Tier 1 capital and excluding perpetual non-cumulative preference shares.

  B. Debt that is subordinate to equity.

  C. Equity capital and debt together.

  D. Core capital excluding undisclosed reserves and general reserves that the bank may make against its

  expected loan losses.

  Correct Answer: A

• Question 128:

  A. U.S treasury markets

  B. Discount window

  C. LIBOR markets

  D. Futures Markets

  Correct Answer: B

• Question 129:

  Bank Sigma has an opportunity to do a securitization deal for a credit card company, but has to retain a portion of the residual risk of the deal with an estimated VaR of $8 MM. Its fees for the deal are $2 MM, and the short-term financing costs are $600,000. What would be the RAROC for this transaction?

  A. 25%

  B. 17.5%

  C. 33%

  D. 12%

  Correct Answer: B

• Question 130:

  US-based BetaBank have accumulated Japanese yen, Japanese government bonds, options on Japanese yen, and positions in commodities that have a positive correlation with yen. Which one of the four following non-statistical risk measures could be used to evaluate the BetaBank's exposure to the Japanese economy?

  A. Position turnover

  B. Position concentrations

  C. Position volatility

  D. Position sensitivities

  Correct Answer: B