GARP GARP Certifications ICBRR Questions & Answers

• Question 301:

  A risk manager is analyzing a call option on the GBP with a vega of 0.02. When the perceived future volatility increases by 1%, the call option

  A. Increases in value by 0.02.

  B. Increases in value by 2.

  C. Decreases in value by 0.02.

  D. Decreases in value by 2.

  Correct Answer: A

• Question 302:

  Which one of the four following statements regarding foreign exchange (FX) swap transactions is INCORRECT?

  A. FX swap is a common short-term transaction.

  B. FX swap is normally used for hedging various currency positions.

  C. FX swap generates more exchange rate risk than simple forward transactions.

  D. FX swap is generally used to for funding foreign currency balances and currency speculation.

  Correct Answer: C

• Question 303:

  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. Hence, the loss rate in this case will be

  A. 1%

  B. 3%

  C. 5%

  D. 10%

  Correct Answer: A

• Question 304:

  According to a Moody's study, the most important drivers of the loss given default historically have been all of the following EXCEPT:

  A. Debt type and seniority

  II. Macroeconomic environment

  III. Obligor asset type

  IV. Recourse

  B. I

  C. II

  D. I, II

  E. III, IV

  Correct Answer: D

• Question 305:

  What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?

  A. The long term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

  B. The long term rates must rise enough to get some borrowers to borrow long-term and some lenders to lend short-term.

  C. The short term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

  D. The short term rates must fall enough to get some borrowers to borrow long-term and some lenders to lend short-term.

  Correct Answer: A

• Question 306:

  The pricing of credit default swaps is a function of all of the following EXCEPT:

  A. Probability of default

  B. Duration

  C. Loss given default

  D. Market spreads

  Correct Answer: B

• Question 307:

  Which one of the following four features is NOT a typical characteristic of futures contracts?

  A. Fixed notional amount per contract

  B. Fixed dates for delivery

  C. Traded Over-the-counter only

  D. Daily margin calls

  Correct Answer: C

• Question 308:

  The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential failure of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed, the principal and the contractual interest payments, would be called ___.

  A. Credit risk; market risk

  B. Market risk; credit risk

  C. Credit risk; performance risk

  D. Performance risk; credit risk

  Correct Answer: D

• Question 309:

  Which one of the following four exotic option types has another option as its underlying asset, and as a result of its construction is generally believed to be very difficult to model?

  A. Spread options

  B. Chooser options

  C. Binary options

  D. Compound options

  Correct Answer: D

• Question 310:

  Which of the following risk types are historically associated with credit derivatives?

  A. Documentation risk

  II. Definition of credit events

  III. Occurrence of credit events

  IV. Enterprise risk

  B. I, IV

  C. I, II

  D. I, II, III

  E. II, III, IV

  Correct Answer: C