GARP GARP Certifications ICBRR Questions & Answers

• Question 131:

  Which one of the following statements accurately describes market risk tolerance?

  A. Market risk tolerance is the maximum likely gain in the market value of portfolios over a given period of time.

  B. Market risk tolerance is the maximum loss in the market value of financial instruments caused by the failure of the counterparty to meet its obligations.

  C. Market risk tolerance is the maximum loss the bank is willing to bear due to fluctuations in market prices and rates.

  D. Market risk tolerance is the minimum loss the bank is willing to bear due to fluctuations in market prices and rates.

  Correct Answer: C

• Question 132:

  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 133:

  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 134:

  What is the role of market risk management function within a bank?

  A. Control and minimize the risks the bank should take.

  II. Establish a comprehensive market risk policy framework.

  III. Define, approve and monitor risk limits.

  IV. Perform stress tests and other qualitative risk assessments.

  B. I and III

  C. II and IV

  D. I, II and III

  E. II, III, and IV

  Correct Answer: D

• Question 135:

  A trader attempts to hold long positions when markets are rising and hold short positions when markets are falling. Which one of the following four trading styles is she likely to use?

  A. Technical trading

  B. Contrarian trading

  C. Black box trading

  D. Market timing trading

  Correct Answer: D

• Question 136:

  Which of the following statements about a bank's behavior regarding Risk Adjusted Return on Capital (RAROC) is correct?

  A. A bank should always seek to maximize their overall RAROC.

  II. A bank should consider investing in a business even with negative RAROC if it increases the

  RAROC of the bank as a whole.

  III. A bank should minimize its overall RAROC by controlling the absolute and relative amount of risk of its businesses.

  IV. A bank should maximize its RAROC by always investing in a new business that maximizes the RAROC for that business unit.

  B. I and II

  C. II and IV

  D. I, II and III

  E. II, III, and IV

  Correct Answer: A

• Question 137:

  Which one of the following four statements correctly defines a typical carry trade?

  A. A bank borrows funds in a high-interest currency and places the funds in a long-term low volatility investment vehicle.

  B. A bank borrows funds in a high-interest currency and invests the funds into high-yield emerging market debt.

  C. A bank borrows funds in a low-interest currency and places the funds on deposit in a high-interest currency.

  D. A bank borrows funds in a low-interest currency, accumulates reserves, and lends in another low-interest currency.

  Correct Answer: C

• Question 138:

  Which one of the following market risk measures evaluates the bank's earnings sensitivity?

  A. Cash flow stress testing

  B. Large exposure risk identification

  C. Earnings-at-risk stress testing

  D. Value-at-risk back testing

  Correct Answer: C

• Question 139:

  The market risk manager of SigmaBank is concerned with the value of the assets in the bank's trading book. Which one of the four following positions would most likely be not included in that book?

  A. 10,000 shares of IBM worth $10,000,000.

  B. $10,000,000 loan to IBM worth $9,800,000.

  C. $10,000,000 bond issued by IBM worth $11,000,000.

  D. 300,000 options on IBM shares worth $10,000,000.

  Correct Answer: B

• Question 140:

  A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations. If these CDOs can be used in a repo transaction at a 20% haircut, what is the maximum leverage factor for a transaction with the CDOs?

  A. 0.8

  B. 1.5

  C. 3

  D. 5

  Correct Answer: D