GARP GARP Certifications ICBRR Questions & Answers

• Question 51:

  Bank Sigma takes a long position in the oil futures market that requires a 2% margin, i.e., the bank has to deposit 2% of the value of the contract with the broker. The futures contracts were priced at $50 per barrel (bbl) at inception, and rose by $5 to $55. The VaR on the position is estimated to be $10. What is the return on this transaction on a risk adjusted basis?

  A. 50%

  B. 10%

  C. 500%

  D. 20%

  Correct Answer: A

• Question 52:

  A bank considers issuing new capital to increase its Tier 1 capital levels. Which of the following financial instruments would most likely to be considered?

  A. Long-term and callable debt convertible to equity

  B. Convertible preferred shares

  C. Short-term callable debt

  D. Short-term debt convertible to non-cumulative preferred shares

  Correct Answer: B

• Question 53:

  Which one of the following four statements about planning for the operational risk framework is INCORRECT?

  A. Planning for the operational risk framework involves setting clear goals, realistic milestones and achievable deliverables that add value.

  B. An operational risk framework is a complex and evolving challenge, and to keep its development under control it is important to apply strong project management skills to the design and implementation of each new element.

  C. Planning for the operational risk framework suggests that short-term planning and focus on immediate benefits is strongly preferred to the long-term planning approach.

  D. Once the elements of an operational risk framework are up and running, they need to be monitored to ensure they maintain their integrity and do not deteriorate over time.

  Correct Answer: C

• Question 54:

  Bank Alpha is making a decision about lending 10-year loans in a sector that is fairly illiquid and is looking at various options to fund the loans. Which of the following options to fund the loans exhibits the most exogenous liquidity risk?

  A. Overnight interbank markets

  B. The 6-month LIBOR markets

  C. The 1-year treasury markets

  D. Foreign exchange markets

  Correct Answer: A

• Question 55:

  Which of the following statements depicts a difference between funding liquidity risks and trading liquidity risks?

  A. Funding liquidity risks are associated with how fast prices move in the market while trading liquidity risks originate out of bank trades.

  B. Funding liquidity risks are concerned with the ability of the bank to fund deposits withdrawals while trading liquidity risks are concerned with the change in bid-offer spreads of asset values.

  C. Funding liquidity risks are short term risks while trading liquidity risks are longer term risks.

  D. Funding liquidity risks are associated only with the bank assets while trading liquidity risks are associated with both assets and liabilities of the bank.

  Correct Answer: B

• Question 56:

  AlphaBank's management is evaluating how changes in its business environment could materially impact risk categories. As a result, bank's management decides to implement the structure, which facilitates the discussion in an integrative context, spanning market, credit, and operational risk factors, and encourages transparency and communication between risk disciplines. Which one of the following four approaches should the management choose to achieve this strategic goal?

  A. Regulatory risk management approach

  B. Enterprise risk management approach

  C. Scenario-based risk management approach

  D. Taxonomy-based risk management approach

  Correct Answer: B

• Question 57:

  An asset-sensitive bank will have a ___ cumulative gap and will benefit from ___ interest rates.

  A. Positive; dropping

  B. Positive; rising

  C. Negative; dropping

  D. Negative; rising

  Correct Answer: B

• Question 58:

  The main building blocks of an operational risk framework include all of the following options EXCEPT:

  A. Loss data collection

  B. Risk and control self-assessment

  C. Compliance document preparation

  D. Scenario analysis

  Correct Answer: C

• Question 59:

  The retail banking business of BankGamma has an expected P and L of $50 million and a VaR of $100 million. The bank seeks to diversify its revenue, and is considering the opportunity to acquire a credit card business with an expected P and L of $50 million and a VaR of $150 million. What will be the overall RAROC if the bank acquires the new business?

  A. 33.3%.

  B. 50%.

  C. 58%.

  D. 72%.

  Correct Answer: C

• Question 60:

  A customer of EtaBank, Alfred Fall, fell on the marble floors of the bank and sustained substantial injuries. Subsequently, he won a personal injury claim of $50,000 against EtaBank. How should EtaBank's operational loss data event information database categorize this event?

  A. This event would qualify as "Business Disruption and System Failures".

  B. This event would qualify as "Employment Practices and Workplace Safety".

  C. This event would not qualify as an operational risk event.

  D. This event would qualify as "Legal Risk".

  Correct Answer: B