GARP GARP Certifications ICBRR Questions & Answers

• Question 231:

  Which of the following statements regarding CDO-squared is correct?

  A. CDO-squared use other CDOs and CMOs as collateral.

  II. Risk assessment of CDO-squared is almost impossible due to their complexity.

  III. CDO-squared have lower credit risk than CMOs but higher than CDOs.

  B. I only

  C. I and II

  D. II and III

  E. I, II, and III

  Correct Answer: B

• Question 232:

  Banks duration match their assets and liabilities to manage their interest risk in their banking book. Currently, the bank's assets and liabilities both have a duration of 10. To hedge against the risk of decreasing interest rates, the bank should

  A. Increase the duration of the liabilities

  II. Increase the duration of the assets

  III. Decrease the duration of the liabilities

  IV. Decrease the duration of the assets

  B. I only.

  C. I and II.

  D. II and III.

  E. I and IV

  Correct Answer: D

• Question 233:

  To estimate the forward price of oil, a commodity trader would most likely use the following pricing relationship:

  A. Oil forward price = Expected future oil price ?Oil market risk premium

  B. Oil forward price = Expected future oil price ?storage cost + Oil market risk premium

  C. Oil forward price = Expected future oil price ?Oil storage cost + (1 + Oil market risk premium)

  D. Oil forward price = Expected future oil price ?Oil storage cost + (1 - Oil market risk premium)

  Correct Answer: A

• Question 234:

  Which one of the following statements describes Macauley's duration?

  A. The change in value of a bond when yields increase by 1 basis point.

  B. The weighted average life of the bond payments.

  C. The present value of the future cash flows of a bond calculated at a yield equal to 1%.

  D. The percentage change in a bond price when the yields change by 1%.

  Correct Answer: B

• Question 235:

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

  A. Because of the different demand/supply balance in each region and the cost of transporting the oil between regions, a tanker of Brent crude oil in the UK will have a different value to a UK buyer than a tanker of Arab light crude oil in Singapore, which results in the basis risk.

  B. Calendar spreads represent a special case of basis risk and occur when the relative prices of commodity futures do not come in alignment and the trader becomes exposed to the absolute price movements.

  C. In most commodities, the longest term contracts are the most volatile, while the shortest term forward contract are the least volatile.

  D. Some commodities can be both in backwardation and a have a strong seasonal element.

  Correct Answer: C

• Question 236:

  Which of the following statements is a key difference between customer loans and interbank loans?

  A. Customers are less credit-worthy than banks on average and hence yields are higher on average for customer loans as compared to interbank loans

  B. Customer loans are of shorter duration than interbank loans

  C. Customer loans are easier to sell than interbank loans

  D. Interbank loans are more customized than commercial loans

  Correct Answer: A

• Question 237:

  In the United States, stock investors must comply with the Regulation T of the Federal Reserve Bank and may borrow up to ___ of the value of the securities from their brokers.

  A. 30%

  B. 40%

  C. 50%

  D. 60%

  Correct Answer: C

• Question 238:

  What is a difference between currency swaps and interest rate swaps?

  A. Currency swaps do not require the exchange of notional principal on maturity.

  B. Currency swaps allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.

  C. Currency swaps are OTC derivative contracts.

  D. Currency swaps generate foreign exchange rate risk in addition to interest rate risk.

  Correct Answer: D

• Question 239:

  To protect the oranges harvest price level, a farmer needs to take a hedge position. Provided that he produces the amount he hedged, which one of the following four strategies will allow the farmer to accomplish his goal?

  A. Going short on oranges futures contracts

  B. Going long on oranges futures contacts

  C. Entering into a customized forward contract with the bank

  D. Negotiating a credit line facility

  Correct Answer: A

• Question 240:

  Which one of the following four statements represents the advantages of the historical sim- ulation method when calculating VaR?

  A. Solve the problem caused by incorrectly assuming that asset returns are normally distributed.

  B. Rely on current market data to describe the distribution of returns and determine volatilities.

  C. Are believed to be superior in accuracy predicting future levels of realized volatility.

  D. Are only using loss probabilities that can be found in tables of the standard normal distribution.

  Correct Answer: A