GARP GARP Certifications ICBRR Questions & Answers

• Question 81:

  Which one of the following four statements about hedging is INCORRECT?

  A. Traders can hedge their risks by taking an appropriate position in the underlying instrument.

  B. Traders can hedge their portfolio risks by taking a position in a different instrument.

  C. For a fully hedged portfolio, any changes in markets prices will typically produce significant changes in the market value of the portfolio.

  D. A large number of hedge positions is generally required to match the underlying transaction completely.

  Correct Answer: C

• Question 82:

  Which one of the four following statements about drawdowns is correct?

  A. Drawdown calculates significant losses in a particular business or a book.

  B. Drawdown estimates the effect on bank's liabilities when the bank's credit rating is cut.

  C. Drawdown quantifies the peak-to-trough decline of an investment over a known time period.

  D. Drawdown measures the aggregate decline in market values of assets and positions due to a shock.

  Correct Answer: C

• Question 83:

  What is the order in which creditors and shareholders get repaid in the event of a bank liquidation?

  A. Depositors, shareholders, debt holders.

  B. Debt holders, depositors, shareholders.

  C. Depositors, debt holders, shareholders.

  D. Depositors, shareholders, depositors.

  Correct Answer: C

• Question 84:

  Using the definitions used by JPMorgan Chase in their annual report, which of the following exposure types would be considered as a non-trading risk exposure?

  A. Short term equity investments

  II. Loans held to maturity

  III. Mortgage servicing rights

  IV. Derivatives used to manage asset/liability exposure.

  B. I and II

  C. II and III

  D. III and IV

  E. II, III, and IV

  Correct Answer: D

• Question 85:

  An asset and liability manager for a large financial institution has to recognize that retail products ___ include embedded options, which are often not rationally exercised, while wholesale products ___ carry penalties for repayment or include rights to terminate wholesale contracts on very different terms than are common in retail products.

  A. Frequently; typically

  B. Hardly ever; typically

  C. Frequently; rarely

  D. Hardly ever; rarely

  Correct Answer: A

• Question 86:

  The risk management department of VegaBank wants to set guidelines on commodity carry trades. Which of the following strategies should she pursue to achieve a profitable commodity carry?

  A. Buy short-term commodity futures and sell longer-dated position when the curve is in contango.

  II. Buy short-term commodity futures and sell longer-dated position when the curve is in backwardation.

  III. Buy long-term commodity futures and sell shorter-dated positions when the curve is in contango.

  IV. Buy long-term commodity futures and sell shorter-dated positions when the curve is in

  backwardation.

  B. I, II

  C. I, III

  D. II, IV

  E. I, IV

  Correct Answer: D

• Question 87:

  Which among the following are shortfalls of the static liquidity ladder model?

  A. The static model gives a liquidity estimate only after the bank faces the liquidity problem.

  II. The static model can only make projections over a few days.

  III. The static model does not incorporate uncertainty in the analysis.

  B. I, II

  C. I, III

  D. I, II, III

  E. III

  Correct Answer: D

• Question 88:

  Company A needs to provide a risk probability/frequency score for its RCSA program. If the event is likely to happen once in 2 years, then the frequency score will be equal to:

  A. 0.2

  B. 0.5

  C. 1

  D. 2

  Correct Answer: B

• Question 89:

  A risk associate responsible for the operational risk function wants to evaluate the upward reporting governance structure and to assess its critical features. Which one of the four attributes does not represent a critical feature of the upward reporting governance structure?

  A. Independence

  B. Importance

  C. Relevance

  D. Security

  Correct Answer: D

• Question 90:

  Bank Zilo has $2 million in cash and $10 million in loans coming due tomorrow with an expected default rate of 1%. The proceeds will be deposited overnight. The bank owes $ 10 million on a securities purchase that settles in two days and pays off $9 million in commercial paper in three days that is not expected to renew. How much money should the bank plan to raise so as to avoid a liquidity problem?

  A. $710 million

  B. $712 million

  C. $700 million

  D. $650 million

  Correct Answer: A