GARP GARP Certifications ICBRR Questions & Answers

• Question 271:

  ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies have an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, the actual probability would be underestimated by:

  A. 1%

  B. 2%

  C. 3%

  D. 4%

  Correct Answer: D

• Question 272:

  In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the entire trading day. Which of the following factors would most likely affect foreign exchange option values?

  A. Change in the value of the underlying

  II. Change in the perception of future volatility III. Change in interest rates

  IV. Passage of time

  B. I, II

  C. I, II, III

  D. II, III

  E. I, II, III, IV

  Correct Answer: D

• Question 273:

  Which one of the following four alternatives lists the three most widely traded currencies on the global foreign exchange market, as of April 2007, in the decreasing order of market share? EUR is the abbreviation of the European euro, JPY is for the Japanese yen, and USD is for the United States dollar, respectively.

  A. JPY, EUR, USD

  B. USD, EUR, JPY

  C. USD, JPY, EUR

  D. EUR, USD, JPY

  Correct Answer: B

• Question 274:

  Which one of the following four statements correctly defines an option's delta?

  A. Delta measures the expected decline in option with time and is usually expressed in years.

  B. Delta measures the effect of 1 bp in interest rate change on the option price.

  C. Delta is the multiplier that best approximates the short-term change in the value of an option.

  D. Delta measures the impact of volatility on the price of an option.

  Correct Answer: C

• Question 275:

  Except for the credit quality of the Credit Default Swap protection seller, the following relationship correctly approximates the yield on a risk-free instrument:

  A. Bond + CDS

  B. Bond + CDS + Market Spread

  C. Bond - CDS

  D. Bond - CDS - Market spread

  Correct Answer: A

• Question 276:

  ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies has an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, what would be the probability of a cumulative $40 million loss from these two mortgage borrowers?

  A. 0.01%

  B. 0.1%

  C. 1%

  D. 10%

  Correct Answer: C

• Question 277:

  To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a credit portfolio manager should use the following metric:

  A. Credit VaR

  B. Expected loss

  C. Unexpected loss

  D. Factor sensitivity

  Correct Answer: B

• Question 278:

  Which one of the following four statements on the seniority of corporate bonds is incorrect?

  A. Senior bonds typically have lower credit spreads than junior bonds with the same maturity and payment characteristics.

  B. Seniority refers to the priority of a bond in bankruptcy.

  C. Junior bonds always pay higher coupons than subordinated bonds.

  D. In bankruptcy, holders of senior bonds are paid in full before any holders of subordinated bonds receive payment.

  Correct Answer: C

• Question 279:

  A credit analyst wants to determine if her bank is taking too much credit risk. Which one of the following four strategies will typically provide the most convenient approach to quantify the credit risk exposure for the bank?

  A. Assessing aggregate exposure at default at various time points and at various confidence levels

  B. Simplifying individual credit exposures so that they can be combined into a simplified expression of portfolio risk for the bank

  C. Using stress testing techniques to forecast underlying macroeconomic factors and bank's idiosyncratic risks

  D. Analyzing distribution of bank's credit losses and mapping credit risks at various statistical levels

  Correct Answer: A

• Question 280:

  From the bank's point of view, repricing the retail debt portfolio will introduce risks of fluctuations in:

  A. Duration

  II. Loss given default

  III. Interest rates

  IV. Bank spreads

  B. I

  C. II

  D. I, II

  E. III, IV

  Correct Answer: D