GARP GARP Certifications ICBRR Questions & Answers

• Question 31:

  Which of the following are the most common methods to increase liquidity in stressed conditions?

  A. Selling or securitizing assets.

  II. Obtaining additional credit lines.

  III. Securing a better credit rating.

  B. I

  C. I, II

  D. I, II, III

  E. II, III

  Correct Answer: B

• Question 32:

  How could a bank's hedging activities with futures contracts expose it to liquidity risk?

  A. The futures hedge may not work due to the widening of basis which could result in a loss for the bank.

  B. Prices may move such that a loss results on the hedge.

  C. Since futures require margins which are settled every day, the bank could find itself scrambling for funds.

  D. The bank could get exposed to liquidity risk since futures trade on an exchange.

  Correct Answer: C

• Question 33:

  Which one of the following four alternatives correctly identifies the purpose of a clearinghouse in trading activities?

  A. Reduction of counterparty risk and liquidity risk

  B. Reduction of basis risk and mark-to-market risk

  C. Reduction of operational risk and credit risk

  D. Reduction of market risk and credit risk

  Correct Answer: A

• Question 34:

  Bank G has a 1-year VaR of USD 20 million at 99% confidence level while bank H has a 1- year VaR of USD 10 million at 95% confidence level. Which bank is in a more risky position as measured by VaR?

  A. Bank G is taking twice the risk of bank H as measured by VaR.

  B. Bank H is taking twice the risk of bank G as measured by VaR.

  C. Since the confidence levels are not the same we cannot make any conclusions.

  D. Both banks are equally risky since the measurements are with the same confidence level.

  Correct Answer: C

• Question 35:

  Bank Muri has $4 million in cash and $5 million in loans coming due tomorrow with an expected default rate of 1%. The proceeds will be deposited overnight. The bank owes $ 9 million on a securities purchase that settles in two days and pays off $8 million in commercial paper in three days that is not expected to renew. On day 2, $1 million in loans is coming in with an expected default rate of 1% and on day 3, $2 million in loans is coming in with expected default rate of 2%. How much should the bank plan to raise in order to avoid liquidity problems?

  A. $500 million

  B. $510 million

  C. $508 million

  D. $550 million

  Correct Answer: B

• Question 36:

  In hedging transactions, derivatives typically have the following advantages over cash instruments:

  A. Lower credit risk

  II. Lower funding requirements

  III. Lower dealing costs

  IV. Lower capital charges

  B. I, II

  C. I, III

  D. II, IV

  E. I, II, III, IV

  Correct Answer: D

• Question 37:

  Operational risk team for a large international bank is implementing business continuity planning (BCP). Which of the following BCP activities fall within the definition of operational risk and represent Basel II Accord's operational risk categories:

  A. Damage to Physical Assets

  II. Business Disruption and System Failures

  III. Social Distancing Requirements

  IV. Potential for Extreme Losses

  B. I and II

  C. III

  D. I and IV

  E. III and IV

  Correct Answer: A

• Question 38:

  BetaFin, a financial services firm, does not have retail branches, but has fixed income, equity, and asset management divisions. Which one of the four following risk and control self-assessment (RCSA) methods fits the firm's operational risk framework the best?

  A. RCSA questionnaire approach

  B. RCSA workshop approach

  C. RCSA loss data approach

  D. RCSA scenario analysis approach

  Correct Answer: B

• Question 39:

  Which of the following are typical properties of a statistical distribution of potential losses that a bank might sustain over a period of time?

  A. The range of possible losses above the average loss is much greater than those below the average loss.

  II. The loss that is most likely to occur is below the average loss.

  III. The loss that is most likely to occur is above the average loss.

  B. II

  C. I, II

  D. I, III

  E. III

  Correct Answer: A

• Question 40:

  A hedge fund trader buys options to establish an exposure in the currency market, thereby effectively removing the risk of being able to participate in a gapping market. In this case the options premium represents the price paid for eliminating the execution risk of

  A. The delta-hedging strategy.

  B. The gamma-hedging strategy.

  C. The vega-hedging strategy.

  D. The theta-hedging strategy.

  Correct Answer: A