Practice 2016-FRR Questions With Certification guide Q&A from Training Expert ValidVCE
Free GARP 2016-FRR Test Practice Test Questions Exam Dumps
NEW QUESTION 11
An endowment asset manager with a focus on long/short equity strategies is evaluating the risks of an equity
portfolio. Which of the following risk types does the asset manager need to consider when evaluating her
diversified equity portfolio?
I. Company-specific projected earnings and earnings risk
II. Aggregate earnings expectations
III. Market liquidity
IV. Individual asset volatility
- A. II, III
- B. I
- C. I, IV
- D. I, II, IV
Answer: A
NEW QUESTION 12
Asset and liability management is typically concerned with all of the following activities:
I. Maintaining the desired liquidity structure of the bank.
II. Managing the factors affecting the structure and composition of a bank's balance sheet.
III. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer
price.
IV. Focusing on the circumstances impacting the stability of income the bank generates over time.
- A. I
- B. I, II, IV
- C. III, IV
- D. II, III
Answer: B
NEW QUESTION 13
James Arthur is a customer of a bank who has taken a floating rate loan from the bank. He is concerned that
the rates may rise in the future increasing his payment amount. Which of the following instruments should he
buy to hedge against the rise in interest rates?
- A. Interest rate floor
- B. Interest rate swap that receives fixed and pays floating
- C. Interest rate cap
- D. Index amortizing swap
Answer: C
NEW QUESTION 14
Interest rate swaps are:
- A. Exchange traded derivative contracts that allow banks and customers to obtain the risk/reward profile of
long-term interest rates without having to use long-term funding. - B. Exchange traded derivative contracts that allow banks to take positions in future interest rates.
- C. OTC derivative contracts that allow banks to take positions in series of future exchange rates.
- D. OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term
interest rates without relying on long-term funding.
Answer: D
NEW QUESTION 15
Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a
foreign exchange option?
- A. Option exercise price
- B. Underlying exchange rates
- C. Underlying interest rates
- D. Discrete future stock prices
Answer: D
NEW QUESTION 16
A large energy company has a recurring foreign currency demands, and seeks to use options with a pay-off
based on the average price of the underlying asset on either a few specific chosen dates or all dates within a
specific pricing window. Which one of the following four option types would most likely meet these specific
foreign currency demands?
- A. European options
- B. Chooser options
- C. Asian options
- D. American options
Answer: C
NEW QUESTION 17
To protect the oranges harvest price level, a farmer needs to take a hedge position. Provided that he produces
the amount he hedged, which one of the following four strategies will allow the farmer to accomplish his goal?
- A. Entering into a customized forward contract with the bank
- B. Going short on oranges futures contracts
- C. Negotiating a credit line facility
- D. Going long on oranges futures contacts
Answer: B
NEW QUESTION 18
Which one of the four following aspects of legal risk is NOT included in the Basel II Accord?
- A. Exposure to fines
- B. Private settlements
- C. Negative publicity resulting from reputational damages
- D. Punitive damages resulting from supervisory actions
Answer: C
NEW QUESTION 19
Which one of the following statements about futures contracts is correct?
I. Futures contracts are subject to the same risks as the underlying instruments.
II. Futures contracts have additional interest rate risk die to the future delivery date.
III. Futures contracts traded in a clearinghouse system are exposed to credit risk with numerous counterparties.
- A. I, II, III
- B. I, III
- C. I
- D. II, III
Answer: C
NEW QUESTION 20
A risk manager is considering how to best quantify option price dynamics using mathematical option pricing
models. Which of the following variables would most likely serve as an input in these models?
I. Implicit parameter estimate based on observed market prices
II. Estimates of sensitivity of option prices to parameter changes
III. Theoretical option determination based on assumptions
- A. I, III
- B. II
- C. I, II, III
- D. II, III
Answer: C
NEW QUESTION 21
Suppose Delta Bank enters into a number of long-term commercial and retail loans at fixed rate prevailing at
the time the loans are originated. If the interest rates rise:
- A. The bank will have to pay lower interest rates to its depositors and would have to pay lower rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans. - B. The bank will have to pay lower interest rates to its depositors and would have to pay higher rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans. - C. The bank will have to pay higher interest rates to its depositors and would have to pay higher rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans. - D. The bank will have to pay higher interest rates to its depositors and would have to pay lower rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans.
Answer: C
NEW QUESTION 22
Which one of the following four statements correctly defines credit risk?
- A. Credit risk is a form of performance risk in contractual relationship.
- B. Credit risk is the risk arising from execution of a company's strategy.
- C. 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. - D. Credit risk is the risk that complements market and liquidity risks.
Answer: A
NEW QUESTION 23
Altman's Z-score incorporates all the following variables that are predictive of bankruptcy EXCEPT:
- A. Return on equity
- B. Equity to debt
- C. Return on total assets
- D. Sales to total assets
Answer: A
NEW QUESTION 24
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is
collateralized with $55,000. The loan also has an annual expected default rate of 2%, and loss given default at
50%. In this case, what will the bank's exposure at default (EAD) be?
- A. $75,000
- B. $25,000
- C. $105,000
- D. $50,000
Answer: D
NEW QUESTION 25
A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian
dollars and sell Brazilian reals. Alpha bank does not hold reals so it asks for a quote to buy Brazilian reals in
the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer and sells the real at
this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange
matched transaction. What is the impact of this transaction on the bank's risk profile?
- A. This transaction eliminates operational risk.
- B. This transaction eliminates counterparty risk.
- C. This transaction eliminates credit risk.
- D. This transaction eliminates market risk.
Answer: D
NEW QUESTION 26
The Treasury function of a bank typically manages all of the following components EXCEPT:
- A. Bank's liquidity
- B. Bank's capital
- C. Bank's assets and liabilities
- D. Bank's performance estimates
Answer: D
NEW QUESTION 27
A trader inadvertently booked a trade with incorrect information. A subsequent market move resulted in a gain
to the bank. Should the bank include this amount of gain into its operational loss event data program?
I. The bank should include this gain in its operational loss event data program as a gain realized due to
operational risk events.
II. The bank should include this gain in its operational loss event data program as it indicates that a control
failed or a process is flawed.
III. The bank should include this event in its operational loss event data program and record the gain as a loss
resulting from operational risk.The bank should not include this event in its operational loss event data
program as it is not a loss event, but a market risk event.
- A. I and II
- B. II and III
- C. I and III
- D. I, II and III
Answer: A
NEW QUESTION 28
The retail banking business of BankGamma has an expected P & 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 & L of $50 million and a VaR of $150 million. What will be the overall RAROC if the
bank acquires the new business?
- A. 72%.
- B. 50%.
- C. 33.3%.
- D. 58%.
Answer: D
NEW QUESTION 29
A portfolio manager is interested in computing risk measures for his bond investment portfolio. Which of the
following measures the sensitivity of duration to interest rates?
- A. Modified duration.
- B. Convexity.
- C. Credit spread.
- D. Yield curve
Answer: B
NEW QUESTION 30
Which one of the following four statements on factors affecting the value of options is correct?
- A. As the value of underlying security increases, the value of the put option increases.
- B. As time passes, options will increase in value.
- C. As volatility rises, options increase in value.
- D. As interest rates rise and option's rho is positive, option prices will decrease.
Answer: C
NEW QUESTION 31
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
- B. 1
- C. 0.2
- D. 0.5
Answer: D
NEW QUESTION 32
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