GARP GARP Certifications ICBRR Questions & Answers

• Question 211:

  Short-selling is typically associated with the following risks:

  A. Potential for extreme losses

  II. Risk associated with the availability of shares to borrow III. Market behavior risk

  IV. Liquidity risk

  B. I, II

  C. I, III

  D. II, IV

  E. I, II, III, IV

  Correct Answer: D

• Question 212:

  Bank customers traditionally trade commodity futures with banks in order to achieve which of the following goals?

  A. To express their own price views

  II. To reverse undesired short-term exposure created from fixed commodity sales III. To reach short-term budgetary targets

  B. I

  C. II

  D. I, III

  E. I, II, III

  Correct Answer: D

• Question 213:

  GammaBank estimates its monthly portfolio volatility at 5%.The portfolio's annual volatility is closest to which of the following?

  A. 8%

  B. 17%

  C. 30%

  D. 35%

  Correct Answer: B

• Question 214:

  Which one of the following four statements about equity indices is INCORRECT?

  A. Equity indices are numerical calculations that reflect the performance of hypothetical equity portfolios.

  B. Equity indices do not trade in cash form, rather, they are meant to track the overall performance of an equity market.

  C. Capitalization-weighted equity indices are not generally considered better to track the performance of an overall market.

  D. Price-weighted equity indices give greater weight to shares trading at high prices.

  Correct Answer: C

• Question 215:

  A corporate bond gives a yield of 6%. A same maturity government bond yields 2%. The probability of the corporate bond defaulting is 2.5%. In case of default, investors expect to lose 60% of their investment. The risk premium in the credit spread is:

  A. 1.5%

  B. 4.5%

  C. 2.5%

  D. 0.5%

  Correct Answer: C

• Question 216:

  Which of the following statements represents a methodological difference between variance-covariance and full revaluation methods?

  A. Variance-covariance approach provides computational advantages over the full revaluation approach.

  B. Variance-covariance approach computes the VAR for each position separately, while the full revaluation method computes the VAR on a portfolio basis.

  C. Variance-covariance approach prices positions more accurately than the full revaluation approach.

  D. Variance-covariance approach uses only historic data to compute the covariance matrix.

  Correct Answer: A

• Question 217:

  Which one of the following four relationships should be used to price equity forwards or futures?

  A. Equity forward or futures price = market equity price + (1 + risk-free rate ?expected dividend rate)t

  B. Equity forward or futures price = market equity price x (1 - risk-free rate ?expected dividend rate)t

  C. Equity forward or futures price = market equity price x (1 + risk-free rate ?expected dividend rate)t

  D. Equity forward or futures price = market equity price + (1 + risk-free rate + expected dividend rate)t

  Correct Answer: C

• Question 218:

  Which one of the following statements is an advantage of using implied volatility as an input when calculating VaR?

  A. Implied volatility assumes volatilities are constant which makes it easy to implement in models.

  B. Current market data is used to determine implied volatilities, which makes them forward looking measures

  C. Implied volatilities are better at predicting actual volatilities

  D. Loss probabilities from the standard normal distribution are used to compute implied volatilities, which makes it easy to compute the.

  Correct Answer: B

• Question 219:

  Returns on two assets show very strong positive linear relationship. Their correlation should be closest to which of the following choices?

  A. 15%

  B. 45%

  C. 60%

  D. 100%

  Correct Answer: D

• Question 220:

  Which one of the following statements regarding collateralized mortgage obligations (CMO) is incorrect?

  A. CMOs have senior tranches which are considered short-term, low-risk instruments by banks

  B. CMOs are asset-backed securities that have pools of collateralized debt obligations (CDOs) as underlying collateral.

  C. CMOs are generally less risky investment than CDOs.

  D. CMOs are pools of mortgages that are divided according to the timing of cash flows.

  Correct Answer: B