GARP GARP Certifications ICBRR Questions & Answers

• Question 311:

  Typically, which one of the following four option risk measures will be used to determine the number of options to use to hedge the underlying position?

  A. Vega

  B. Rho

  C. Delta

  D. Theta

  Correct Answer: C

• Question 312:

  Which one of the following four options is NOT a typical component of a currency swap?

  A. An initial currency exchange of the notional amount

  B. Denomination of the original notional amount into a foreign currency

  C. Periodic exchange of interest payments in different currencies

  D. A final currency exchange

  Correct Answer: B

• Question 313:

  Which of the following statements regarding bonds is correct?

  A. Interest rates on bonds are typically stated on an annualized rate.

  II. Bonds can pay floating coupons that are directly linked to various interest rate indices.

  III. Convertible bonds have an element of prepayment risk.

  IV. Callable bonds have an element of equity risk.

  B. I only

  C. I and II

  D. I, II, and III

  E. II, III, and IV

  Correct Answer: B

• Question 314:

  To safeguard its capital and obtain insurance if the borrowers cannot repay their loans, Gamma Bank accepts financial collateral to manage its credit risk and mitigate the effect of the borrowers' defaults. Gamma Bank will typically accept all of the following instruments as financial collateral EXCEPT?

  A. Unrated bonds issued and traded on a recognized exchange

  B. Equities and convertible bonds included in a main market index

  C. Commercial debts owed to a company in a form of receivables

  D. Mutual fund shares and similar unit investment vehicles subject to daily quotes

  Correct Answer: C

• Question 315:

  Which one of the following four options does NOT represent a benefit of compensating balances to the bank?

  A. Compensating balances allow the bank to net some of the exposure they may have in case of default, by taking funds from these specific deposit account one the borrower defaults.

  B. Since the compensating balances cannot be withdrawn at short notice, if at all, they are not considered transaction accounts and are able to provide a stable funding to the bank, reducing its reliance on more volatile external inter-bank based funding sources.

  C. Compensation balances influence the expected loss rate of the bank given the default obligor and improve capital structure by controlling obligor type and avoiding payment delays.

  D. Since the compensating balances reduce the next amount lent to the borrower, the earned return on the loan is increased, further widening the bank's interest rate margin and profitability.

  Correct Answer: C

• Question 316:

  Which of the following factors can cause obligors to default at the same time?

  A. Obligors may be harmed by exposures to similar risk factors simultaneously.

  II. Obligors may exhibit herd behavior.

  III. Obligors may be subject to the sampling bias.

  IV. Obligors may exhibit speculative bias.

  B. I

  C. II, III

  D. I, II

  E. III, IV

  Correct Answer: C

• Question 317:

  The value of which one of the following four option types is typically dependent on both the final price of its underlying asset and its own price history?

  A. Stout options

  B. Power options

  C. Chooser options

  D. Basket options

  Correct Answer: A

• Question 318:

  A financial analyst is trying to distinguish credit risk from market risk. A $100 loan collateralized with $200 in stock has limited ___, but an uncollateralized obligation issued by a large bank to pay an amount linked to the long-term performance of the Nikkei 225 Index that measures the performance of the leading Japanese stocks on the Tokyo Stock Exchange likely has more ___ than ___.

  A. Legal risk; market risk; credit risk

  B. Market risk; market risk; credit risk

  C. Market risk; credit risk; market risk

  D. Credit risk, legal risk; market risk

  Correct Answer: B

• Question 319:

  Of all the risk factors in loan pricing, which one of the following four choices is likely to be the least significant?

  A. Probability of default

  B. Duration of default

  C. Loss given default

  D. Exposure at default

  Correct Answer: B

• Question 320:

  As DeltaBank explores the securitization business, it is most likely to embrace securitization to:

  A. Bring transparency to the bank's balance sheet

  II. Create a new profit center for the bank

  III. Strategically release risk capital and regulatory capital for redeployment IV. Generate cash for additional debt origination

  B. I, III

  C. II, IV

  D. I, II, III

  E. II, III, IV

  Correct Answer: D