GARP GARP Certifications ICBRR Questions & Answers

• Question 221:

  10 basis points are equal to:

  A. 10%

  B. 1%

  C. 0.1%

  D. 0.01%

  Correct Answer: C

• Question 222:

  Which one of the four following activities is NOT a component of the daily VaR computing process?

  A. Updating individual risk factor models.

  B. Computing portfolio risk by delta-normal or delta-gamma method.

  C. Updating factor interrelationships.

  D. Producing the VaR report.

  Correct Answer: B

• Question 223:

  The probability of default on a bond is 3%, and in the case of default, investors expect to lose 70% of their investment. The bond's risk premium is 1.9%. The expected loss and the credit spread of the bond are, respectively:

  A. 1.6% and 2.5%.

  B. 2.1% and 3%.

  C. 1.6% and 3.5%.

  D. 2.1% and 4%.

  Correct Answer: D

• Question 224:

  James Johnson purchased a plain vanilla bond that has modified duration of 10 and convexity of 0.5. If yields increase by 1%, its modified duration is expected to

  A. increase by 0.5.

  B. increase by 1.5.

  C. decrease by 0.5.

  D. decrease by 1.5.

  Correct Answer: C

• Question 225:

  On January 1, 2010 the TED (treasury-euro dollar) spread was 0.4%, and on January 31, 2010 the TED spread is 0.9%. As a risk manager, how would you interpret this change?

  A. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.

  B. The decrease in the TED spread indicates an increase in credit risk on interbank loans.

  C. Increase in interest rates on both interbank loans and T-bills.

  D. Increase in credit risk on T-bills.

  Correct Answer: B

• Question 226:

  Which one of the following is a reason for a bank to keep a commercial loan in its portfolio until maturity?

  A. Commercial loans usually have attractive risk-return profile.

  II. Commercial loans are difficult to sell due to non standard features.

  III. Commercial loans could be used to maintain good relations with important customers.

  IV. The credit risk in commercial loans is low.

  B. I, II and III

  C. III and IV

  D. II and IV

  E. IV only

  Correct Answer: A

• Question 227:

  James manages a loans portfolio. He has to evaluate a large number of loans to choose which of them he will keep in the bank's books. Which one of the following four loans would he be most likely to sell to another bank?

  A. Loan to a major customer who is also a director and a large owner.

  B. Loan made to a highly risky borrower that is fully collateralized by the customer's deposits.

  C. Loan to a commercial customer with a good payment history and collateral.

  D. Loan to a borrower who has been delinquent previously, but now is performing as agreed.

  Correct Answer: C

• Question 228:

  To estimate the price of gold forwards, an investment analyst focuses on the cost of holding physical gold (bullion) and the cost of shorting the same. Given that physical gold spot price is $1,000, the annual risk-free rate is 5%, and the gold lease rate equals 2% annually, the analyst's best estimate of the gold forward price to equal

  A. $950

  B. $1030

  C. $1070

  D. $1100

  Correct Answer: B

• Question 229:

  What are some of the drawbacks of correlation estimates? Which of the following statements identifies major problems with correlation calculations?

  A. Correlation estimates are not able to capture increases in factor co-movements in extreme market scenarios.

  II. Correlation estimates tend to be unstable.

  III. Historical correlations may not forecast future correlations correctly.

  IV. Correlation estimates assume normally distributed returns.

  B. I and II

  C. I and IV

  D. I, II and III

  E. II, III, and IV

  Correct Answer: C

• Question 230:

  In early March, an energy trader takes a long position in natural gas futures for delivery in June, and hedges this exposure by taking a position in futures for July delivery. These trades were executed on the expectation that over time, the relative prices of the June and July contracts will come into alignment, the movement in these two contracts will largely mirror each other, and as a result of this, the net exposure is minimized and the position is protected against absolute price movements. However, if the two relative prices do not come into alignment with each other due to the scarcity of any of the two traded contracts in the futures market, the trader is likely to become exposed to the

  A. Location basis

  B. Quality basis

  C. Product basis

  D. Calendar spreads basis

  Correct Answer: D