GARP GARP Certifications ICBRR Questions & Answers

• Question 41:

  A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations. These CDOs can be used in a repurchase transaction at a 20% haircut. Starting with $100 worth of CDOs, which one of the following four positions would completely utilize the available leverage?

  A. The trader can buy $100 in CDO's, and repo the CDO's to get back $100, less interest.

  B. The trader can buy $100 in CDO's, and repo the CDO's to get back $80, less interest.

  C. The trader can buy $100 in CDO's, and repo the CDO's to get back $60, plus interest.

  D. The trader can buy $100 in CDO's, and repo the CDO's to get back $20, plus interest.

  Correct Answer: B

• Question 42:

  To reduce the variability of net interest income, Gamma Bank can swap positions that make its duration gap equal to

  A. 0

  B. 1

  C. -1

  D. 0.5

  Correct Answer: A

• Question 43:

  To improve the culture and awareness of the operational risk, Gamma Bank's CRO decides to promote three activities within her organization. Which one of the following four activities is NOT typically used to develop an operational risk framework?

  A. Marketing

  B. Planning

  C. Training

  D. Auditing

  Correct Answer: D

• Question 44:

  A bank has a large number of auto loans and would prefer to sell them to raise cash for more funding. However, selling individual auto loans is difficult. What could the bank do?

  A. Package the loans into a securitized vehicle and sell the low risk portion of the portfolio.

  B. Obtain a stronger credit rating so that the bank could borrow at a cheaper rate.

  C. Set up a marketing team to sell individual loans to investors.

  D. Merge with another bank.

  Correct Answer: A

• Question 45:

  When considering the advantages of operational risk function owned by the Chief Compliance Officer in a financial institution, an operational risk manager consultant suggests that this governance approach will have all of the following advantages except:

  A. This governance structure maintains an independent operational risk function.

  B. The operational risk function is closely linked in a partnership with the compliance function to leverage data and assessment activities.

  C. The operational risk function quickly inherits an existing reporting structure, established meeting schedules and functional reporting cycles from the compliance function.

  D. In accordance with Basel II Accord, the operational risk function should report directly into the audit function and strengthen that function.

  Correct Answer: D

• Question 46:

  Which one of the four following statements describes a specific characteristic of risk and control self-assessments (RCSA) which distinguishes it from both control assessments and risk and control assessments?

  A. RCSA is conducted by a third party, perhaps audit, compliance or the Sarbanes-Oxley team.

  B. RCSA tests a control's effectiveness against set criteria and issues a pass/fail or level of effectiveness score.

  C. RCSA is subjective by nature.

  D. RCSA includes a risk assessment in addition to a control assessment.

  Correct Answer: C

• Question 47:

  Which one of the following four statements correctly identifies disadvantages of using the economic capital?

  A. The economic capital models used by banks may be subject to significant model risk.

  B. Economic capital may do not take into consideration the regulatory requirements.

  C. Since banks are putting their money at risk they have an incentive to increase economic capital.

  D. Economic capital estimates the level of expected losses.

  Correct Answer: A

• Question 48:

  Which of the following bank events could stress the bank's liquidity position?

  A. Obligations to fund assets like mortgages

  II. Unusually large depositor withdrawals

  III. Counterparty collateral calls

  IV. Nonperforming assets

  B. I, II

  C. IV

  D. III, IV

  E. I, II, III and IV

  Correct Answer: D

• Question 49:

  DeltaFin wants to develop a control scoring method for its RCSA program. Which of the following statements regarding scoring methods are correct?

  A. DeltaFin can develop a control scoring method that assesses both the design and the performance of the control.

  II. DeltaFin can combine the design and performance scores for each control to produce an overall control effectiveness score.

  III. DeltaFin can use the control performance scores to compute an overall risk severity score.

  IV. DeltaFin can determine its own appropriate control scoring method.

  B. I only

  C. II and III

  D. I, II and IV

  E. II, III, and IV

  Correct Answer: C

• Question 50:

  Which of the following about the ratios between various Tiers of capital is not a requirement of the Basel Committee?

  A. Tier 2 capital cannot exceed 50% of the bank's total regulatory capital.

  B. Innovative instruments in Tier 1 are limited to a maximum of 15% of Tier 1 capital.

  C. Lower Tier 2 capital may only equal 50% of core capital.

  D. Upper Tier 2 capital may only equal 30% of core capital.

  Correct Answer: B