GARP GARP Certifications ICBRR Questions & Answers

• Question 181:

  Forward rate agreements (FRA) are:

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

  B. OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates by relying on long-term funding.

  C. Exchange traded derivative contracts that allow banks to take positions in future exchange rates.

  D. OTC derivative contracts that allow banks to take positions in forward interest rates.

  Correct Answer: D

• Question 182:

  Which one of the following four statements represents a possible disadvantage of using total return swap to manage equity portfolio risks?

  A. Similar to the formal portfolio rebalancing strategy, the total return receiver needs to modify the size of the trading position.

  B. The total return receiver needs to incur the transaction costs of establishing an equity position.

  C. Similar to an equity forward position, the total return receiver does not get paid the dividend.

  D. The total return receiver does not have any voting rights.

  Correct Answer: D

• Question 183:

  The skewness of ABC company's stock returns equal -1.5. What is the correct interpretation of this?

  A. It indicates higher relative probability of negative returns compared to estimates derived from a normal distribution.

  B. It indicates that the returns are indeed normally distributed.

  C. It indicates lower probability of extreme negative events compared to the normal distribution.

  D. It indicates higher relative probability of extreme events than non-extreme events compared to estimates from a normal distribution.

  Correct Answer: A

• Question 184:

  When the cost of gold is $1,100 per bullion and the 3-month forward contract trades at $900, a commodity trader seeks out arbitrage opportunities in this relationship. To capitalize on any arbitrage opportunities, the trader could implement which one of the following four strategies?

  A. Short-sell physical gold and take a long position in the futures contract

  B. Take a long position in physical gold and short-sell the futures contract

  C. Short-sell both physical gold and futures contract

  D. Take long positions in both physical gold and futures contract

  Correct Answer: A

• Question 185:

  Which of the following risk measures are based on the underlying assumption that interest rates across all maturities change by exactly the same amount?

  A. Present value of a basis point.

  II. Yield volatility.

  III. Macaulay's duration.

  IV. Modified duration.

  B. I and II

  C. I, II, and III

  D. I, III, and IV

  E. I, II, III, and IV

  Correct Answer: C

• Question 186:

  Samuel Teng owns a portfolio of bonds and is trying to compute the convexity of his portfolio. Which of the following choices equals the convexity of Samuel's portfolio?

  A. Minimum of the convexities of the component bonds

  B. Value-weighted average convexity of the component bonds

  C. Coupon-weighted average convexity of the component bonds

  D. Maximum of the convexities of the component bonds

  Correct Answer: B

• Question 187:

  James Johnson has a $1 million long position in ThetaGroup with a VaR of 0.3 million, and $1 million long position in VolgaCorp with a VaR of 0.4 million. The returns of the two companies have zero correlation. What is the portfolio VaR?

  A. $1 million

  B. $0.7 million

  C. $0.5 million

  D. $0.4 million

  Correct Answer: C

• Question 188:

  Rising TED spread is typically a sign of increase in what type of risk among large banks?

  A. Credit risk

  II. Market risk

  III. Liquidity risk

  IV. Operational risk

  B. I only

  C. II only

  D. I and IV

  E. I, II, and III

  Correct Answer: A

• Question 189:

  A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5% semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk manager of the bank is concerned about the sensitivity to interest rates. Which of the following statements are true?

  A. The price of the bond paying floating interest is more sensitive to interest rates than the bond paying fixed interest.

  B. The price of the bond paying fixed interest is more sensitive to interest rates than the bond paying floating interest.

  C. Both bond prices are equally sensitive to interest rates.

  D. The given information is not enough to determine the sensitivity of the bond prices.

  Correct Answer: B

• Question 190:

  Which of the following statements defines Value-at-risk (VaR)?

  A. VaR is the worst possible loss on a financial instrument or a portfolio of financial instruments over a given time period.

  B. VaR is the minimum likely loss on a financial instrument or a portfolio of financial instruments with a given degree of probabilistic confidence.

  C. VaR is the maximum of past losses over a given period of time.

  D. VaR is the maximum likely loss on a financial instrument or a portfolio of financial instruments over a given time period with a given degree of probabilistic confidence.

  Correct Answer: D