GARP GARP Certifications ICBRR Questions & Answers

• Question 281:

  Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment. What interest rate should Alpha Bank charge on the no-payment loan to Delta Industrial Machinery Corporation?

  A. 8%

  B. 9%

  C. 10%

  D. 12%

  Correct Answer: C

• Question 282:

  When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no credit losses.

  A. Symmetric; less

  B. Symmetric; greater

  C. Asymmetric; less

  D. Asymmetric; greater

  Correct Answer: D

• Question 283:

  Which one of the following four mathematical option pricing models is used most widely for pricing European options?

  A. The Black model

  B. The Black-Scholes model

  C. The Garman-Kohlhagen model

  D. The Heston model

  Correct Answer: B

• Question 284:

  All of the four following exotic options are path-independent options, EXCEPT:

  A. Chooser options

  B. Power options

  C. Asian options

  D. Basket options

  Correct Answer: C

• Question 285:

  Which one of the following four statements regarding counterparty credit risk is INCORRECT?

  A. Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.

  B. The exposure at default is variable due to fluctuations in swap valuations.

  C. The exposure at default can be negatively correlated to probability of default.

  D. Dynamic collateral provisions often increase counterparty risk considerably.

  Correct Answer: B

• Question 286:

  Which one of the following four models is typically used to grade the obligations of small- and medium-size enterprises?

  A. Causal models

  B. Historical frequency models

  C. Credit scoring models

  D. Credit rating models

  Correct Answer: C

• Question 287:

  As Japan ___ its budget deficits and ___ its dependence on debt, the Japanese currency, JPY, would ___ in value against other currencies.

  A. Reduces, reduces, appreciate

  B. Reduces, reduces, depreciate

  C. Increases, reduces, appreciate

  D. Reduces, increases, depreciate

  Correct Answer: A

• Question 288:

  Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's expected loss be?

  A. $500

  B. $750

  C. $1,000

  D. $1,300

  Correct Answer: A

• Question 289:

  Most loans and deposits in the interbank market have a maturity of:

  A. More than 10 years

  B. More than 5 years but less than 10 years

  C. More than 3 years but less than 5 years

  D. Less than one year

  Correct Answer: D

• Question 290:

  Gamma Bank is active in loan underwriting and securitization business, and given its collective credit exposure, it will be typically most interested in the following types of portfolio credit risk:

  A. Expected loss

  II. Duration

  III. Unexpected loss

  IV. Factor sensitivities

  B. I

  C. II

  D. I, III

  E. I, III, IV

  Correct Answer: D