GARP GARP Certifications ICBRR Questions & Answers

• Question 141:

  Which one of the four following statements about consortium databases is correct? Consortium databases

  A. Gather information from news articles.

  B. Use data from the top 5% of the industry.

  C. Provide data to map risk categories with causes.

  D. Contain anonymous information.

  Correct Answer: D

• Question 142:

  Which of the following assets on the bank's balance sheet has greatest endogenous liquidity risk?

  A. A 2-year U.S treasury bond

  B. A 1-week corporate loan with a AAA rated company

  C. A 10-year U.S treasury bond

  D. A 3-year subprime mortgage

  Correct Answer: D

• Question 143:

  Arnold Wu owns a floating rate bond. He is concerned that the rates may fall in the future decreasing his payment amount. Which of the following instruments should he buy to hedge against the fall in interest rates?

  A. Interest rate floor

  B. Interest rate cap

  C. Index amortizing swap

  D. Interest rate swap that receives floating and pays fixed

  Correct Answer: A

• Question 144:

  Which one of the following four statements regarding commodity exchanges is INCORRECT?

  A. Banks have no natural direct exposure to commodities.

  B. Banks trade in OTC contracts primarily to serve clients and facilitate client hedging and lending.

  C. Customers rarely trade physical commodities with banks.

  D. Commodity markets are mot liquid than debt markets.

  Correct Answer: D

• Question 145:

  Which one of the following four statements regarding floating rate bonds is incorrect?

  A. Floating rate bonds have coupon payments tied to floating interest rates or floating interest rate indexes.

  B. Floating rate bonds typically have less price risk than fixed rate bonds.

  C. Floating rate bonds are very sensitive to changes in interest rates.

  D. Floating rate bonds only have a small degree of interest rate risk.

  Correct Answer: C

• Question 146:

  Banks duration match their assets and liabilities to manage their interest risk in their banking book. A bank has $100 million in interest rate sensitive assets and $100 million in interest rate sensitive liabilities. Currently the bank's assets have a duration of 5 and its liabilities have a duration of 2. The asset-liability management committee of the bank is in the process of duration-matching. Which of the following actions would best match the durations?

  A. Increase the duration of liabilities by 2 and increase the duration of assets by 1.

  B. Increase the duration of liabilities by 2 and decrease the duration of assets by 1.

  C. Decrease the duration of liabilities by 1 and increase the duration of assets by 1.

  D. Decrease the duration of liabilities by 1 and decrease the duration of assets by 1.

  Correct Answer: B

• Question 147:

  A bank customer can use either a plain vanilla option or an option contract with volumetric flexibility to reduce the following risks:

  A. Market Risk

  II. Basis Risk

  III. Operational Risk

  B. I

  C. II

  D. I, II

  E. II, III

  Correct Answer: C

• Question 148:

  The exercise for an American type option prior to expiration day is virtually certain in the following case:

  A. In the event of a high dividend for an in-the-money call option

  B. In the event of a high dividend for an in-the-money put option

  C. In the event of a low dividend for an in-the-money call option

  D. In the event of a low dividend for an in-the-money put option

  Correct Answer: A

• Question 149:

  To hedge equity exposure without buying or selling shares of stock or otherwise rebalancing the portfolio, a risk manager could initiate

  A. A short total return swap position.

  B. A long total return swap position.

  C. A short debt-for-equity swap.

  D. A long debt-for-equity swap.

  Correct Answer: A

• Question 150:

  To achieve leverage in long positions, a bank can use the following strategy:

  A. Securities may be purchased with borrowed funds using a bank loan from the broker.

  II. Securities may be borrowed on margin by taking a loan from a broker.

  III. Securities may be purchased and used in a repo transaction to generate cash for further security purchases.

  IV. The bank may enter into a derivative transaction, such as a total return swap, that requires little to no collateral but mimics the performance of a long or short position in the underlying instrument.

  B. I, II

  C. I, III

  D. II, IV

  E. I, II, III, IV

  Correct Answer: D