GARP GARP Certifications ICBRR Questions & Answers

• Question 321:

  In the United States, during the second quarter of 2009, transactions in foreign exchange derivative contracts comprised approximately what proportion of all types of derivative transactions between financial institutions?

  A. 2%

  B. 7%

  C. 25%

  D. 43%

  Correct Answer: B

• Question 322:

  An options trader is assessing the aggregate risk of her currency options exposures. As an options buyer, she can potentially ___ lose more than the premium originally paid. As an option seller, however, she has a ___ risk on the contract and always receives a premium.

  A. Never, unlimited

  B. Sometimes, unlimited

  C. Never, limited

  D. Sometimes, limited

  Correct Answer: A

• Question 323:

  To estimate a partial change in option price, a risk manager will use the following formula:

  A. Partial change in option price = Delta x Change in underlying price

  B. Partial change in option price = Delta x (1+ Change in underlying price)

  C. Partial change in option price = Delta x Gamma x Change in underlying price

  D. Partial change in option price = Delta x Gamma x (1+ Change in underlying price)

  Correct Answer: A

• Question 324:

  Altman's Z-score incorporates all the following variables that are predictive of bankruptcy EXCEPT:

  A. Return on total assets

  B. Sales to total assets

  C. Equity to debt

  D. Return on equity

  Correct Answer: D

• Question 325:

  After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ return on equity for the bank, because the cash generated by the risk-transfer and the overall ___ of the bank's exposure to the risk.

  A. Increases; increase;

  B. Increases; reduction;

  C. Decreases; increase;

  D. Decreases; reduction;

  Correct Answer: B

• Question 326:

  In the United States, foreign exchange derivative transactions typically occur between

  A. A few large internationally active banks, where the risks become concentrated.

  B. All banks with international branches, where the risks become widely distributed based on trading exposures.

  C. Regional banks with international operations, where the risks depend on the specific derivative transactions.

  D. Thrifts and large commercial banks, where the risks become isolated.

  Correct Answer: A

• Question 327:

  Which one of the following four statements correctly defines chooser options?

  A. The owner of these options decides if the option is a call or put option only when a predetermined date is reached.

  B. These options represent a variation of the plain vanilla option where the underlying asset is a basket of currencies.

  C. These options pay an amount equal to the power of the value of the underlying asset above the strike price.

  D. These options give the holder the right to exchange one asset for another.

  Correct Answer: A

• Question 328:

  To estimate the interest charges on the loan, an analyst should use one of the following four formulas:

  A. Loan interest = Risk-free rate - Probability of default x Loss given default + Spread

  B. Loan interest = Risk-free rate + Probability of default x Loss given default + Spread

  C. Loan interest = Risk-free rate - Probability of default x Loss given default - Spread

  D. Loan interest = Risk-free rate + Probability of default x Loss given default - Spread

  Correct Answer: B

• Question 329:

  Which of the following attributes are typical for early models of statistical credit analysis?

  A. These models assumed the default of any obligor was independent of the default of any other.

  B. The underlying default assumptions were analytically inconvenient.

  C. The underlying default assumptions failed to develop relatively simple formulas for the determination of portfolio credit risk.

  D. These models effectively incorporated herd behavior.

  Correct Answer: A

• Question 330:

  Which one of the following four statements correctly defines credit risk?

  A. Credit risk is the risk that complements market and liquidity risks.

  B. Credit risk is a form of performance risk in contractual relationship.

  C. Credit risk is the risk arising from execution of a company's strategy.

  D. Credit risk is the risk that summarizes the exposures a company or firm assumes when it attempts to operate within a given field or industry.

  Correct Answer: B