GARP GARP Certifications ICBRR Questions & Answers

• Question 161:

  Which one of the following four statements describes the advantage of using delta-gamma method of mapping options positions over delta-normal method?

  Delta-gamma method

  A. Converts options into underlying factor risks according to their deltas and the gammas to those factors.

  B. Fully captures option price risk, particularly for extreme price movements.

  C. Overstates the risk of long option positions, but understate the risk of short option positions.

  D. Approximates more accurately the non-linear relationship of option values and risk.

  Correct Answer: D

• Question 162:

  Over a long period of time DeltaBank has amassed a large equity option position. Which of the following risks should be considered in this transaction?

  A. Counterparty risk on long OTC option positions

  II. Counterparty risk on short OTC option positions III. Counterparty risk on long exchange-traded option positions IV. Counterparty risk on short exchange-traded option positions

  B. I

  C. I, II

  D. II, III

  E. II, III, IV

  Correct Answer: A

• Question 163:

  To estimate the responsiveness of a particular equity portfolio to the overall market, a trader should use the portfolio's

  A. Alpha

  B. Beta

  C. CVaR

  D. VaR

  Correct Answer: B

• Question 164:

  AlphaBank estimates its 1-month, 95% VaR is 30 million EUR. This means that in the next month, there is a

  A. 95% chance that AlphaBank can lose more than 30 million EUR.

  B. 95% chance that AlphaBank will lose exactly 30 million EUR.

  C. 95% chance that AlphaBank can lose at most 30 million EUR.

  D. 95% chance that AlphaBank will at least lose 30 million EUR.

  Correct Answer: C

• Question 165:

  AlphaBank estimates that the annualized standard deviation of its portfolio returns equal 30%; The daily volatility of the portfolio is closest to which of the following?

  A. 1.0%

  B. 2.0%

  C. 2.5%

  D. 3.0%

  Correct Answer: B

• Question 166:

  Which one of the following four statements best describes challenges of delta-normal method of mapping options positions?

  Delta-normal method understates

  A. Risks of long and short positions for both calls and puts.

  B. Risks of long option positions for puts and overstates risks of short option positions for calls.

  C. Risks of long option positions for calls and overstates risks of short option positions for puts.

  D. Risks of short option positions and overstates risks of long option positions for both calls and puts.

  Correct Answer: D

• Question 167:

  A corporate bond was trading with 2%probability of default and 60% loss given default. Due to the credit crisis the probability of default increased to 10% and the loss given default increased to 100%. Assuming that the risk premium remained the same how did the credit spread change?

  A. Increased by 1120 basis points

  B. Increased by 880 basis points

  C. Increased by 1000 basis points

  D. Decreased by 880 basis points

  Correct Answer: B

• Question 168:

  A proprietary trading desk for a large bank hedges an Arab light OTC forward position with Brent crude oil forwards. The trading desk benefits from using the most liquid OTC market to hedge, the market for the Brent crude, but hedging its using the Brent contract, exposes itself to the following type of risk:

  A. Basis risk

  B. Term risk

  C. Correlation risk

  D. Seasonality risk

  Correct Answer: A

• Question 169:

  Interest rate swaps are:

  A. Exchange traded derivative contracts that allow banks to take positions in future interest rates.

  B. OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without relying on long-term funding.

  C. Exchange traded derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.

  D. OTC derivative contracts that allow banks to take positions in series of future exchange rates.

  Correct Answer: B

• Question 170:

  John owns a bond portfolio worth $2 million with duration of 10. What positions must he take to hedge this portfolio against a small parallel shifts in the term structure.

  A. Long position worth $2 million with duration of 10.

  B. Long position worth $20 million with duration of 1.

  C. Short position worth $2 million with duration of 10.

  D. Short position worth $20 million with duration of 1.

  Correct Answer: C