[Sep-2023] 2016-FRR Dumps PDF - 2016-FRR Real Exam Questions Answers
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Which documents are required, on the day of the GARP 2016-FRR Certification
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NEW QUESTION # 11
James Johnson has a $1 million long position in ThetaGroup with a VaR of 0.3 million, and $1 million long
position in VolgaCorp with a VaR of 0.4 million. The returns of the two companies have zero correlation.
What is the portfolio VaR?
- A. $1 million
- B. $0.4 million
- C. $0.5 million
- D. $0.7 million
Answer: C
NEW QUESTION # 12
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 cap
- C. Interest rate swap that receives fixed and pays floating
- D. Index amortizing swap
Answer: B
NEW QUESTION # 13
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?
I. 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.
- A. I, IV
- B. I, III
- C. II, IV
- D. I, II
Answer: A
NEW QUESTION # 14
Which of the following reports have been suggested by the FDIC that banks should produce in addition to the
usual probabilistic analysis and stress tests in order to gauge liquidity issues?
I. Cash flow gaps
II. Funding availability
III. Critical assumptions used in credit projections
- A. I, II, III
- B. I
- C. I, III
- D. I, II
Answer: A
NEW QUESTION # 15
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. Importance
- B. Relevance
- C. Independence
- D. Security
Answer: D
NEW QUESTION # 16
According to the principles of the Basel II Accord, the implementation and relative weights of the elements of
the operational risk framework depend on:
I. The culture of the financial institution
II. Regulatory drivers
III. Business drivers
IV. The bank's reporting currency
- A. I, II, III
- B. I, IV
- C. II, III
- D. II, IV
Answer: A
NEW QUESTION # 17
Which of the following statements about implementation of a successful RCSA program is correct?
- A. The RCSA scoring methodology should include only financial impacts and not include reputational,
legal, regulatory, client and life safety impacts. - B. An RCSA is only complete after all possible mitigating actions have been identified and analyzed as a
result of the assessment process. - C. Internal loss data help to identify the risks and control weaknesses that need to be addressed in the
RCSA; external events are not helpful in informing the discussions around potential risks. - D. To ensure that the RCSA is well designed, it is important to interview participants, stakeholders and
support functions prior to the launching the RCSA.
Answer: D
NEW QUESTION # 18
For which one of the following four reasons do corporate customers use foreign exchange derivatives?
I. To lock in the current value of foreign-denominated receivables
II. To lock in the current value of foreign-denominated payables
III. To lock in the value of expected future foreign-denominated receivables
IV. To lock in the value of expected future foreign-denominated payables
- A. II
- B. I, II, III, IV
- C. II and III
- D. I and IV
Answer: B
NEW QUESTION # 19
Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year
no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate
spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both
interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta
defaults, the bank expects to lose 50% of its promised payment. Hence, the loss rate in this case will be
- A. 3%
- B. 10%
- C. 5%
- D. 1%
Answer: D
NEW QUESTION # 20
Which one of the following four statements correctly defines chooser options?
- A. The owner of these options decides if the option is a call or put option only when a predetermined date
is reached. - B. These options represent a variation of the plain vanilla option where the underlying asset is a basket of
currencies. - C. These options give the holder the right to exchange one asset for another.
- D. These options pay an amount equal to the power of the value of the underlying asset above the strike
price.
Answer: A
NEW QUESTION # 21
Arnold Wu owns a floating rate bond. He is concerned that the rates may fall in the future decreasing his
payment amount. Which of the following instruments should he buy to hedge against the fall in interest rates?
- A. Interest rate floor
- B. Interest rate cap
- C. Index amortizing swap
- D. Interest rate swap that receives floating and pays fixed
Answer: A
NEW QUESTION # 22
What is generally true of the relationship between a bond's yield and it's time to maturity when the yield curve
is upward sloping?
- A. There is no relationship between the two
- B. The longer the time to maturity of the bond, the lower its yield.
- C. The longer the time to maturity of the bond, the higher its yield.
- D. The shorter the time to maturity of the bond, the higher its yield.
Answer: C
NEW QUESTION # 23
What is the order in which creditors and shareholders get repaid in the event of a bank liquidation?
- A. Depositors, debt holders, shareholders.
- B. Debt holders, depositors, shareholders.
- C. Depositors, shareholders, depositors.
- D. Depositors, shareholders, debt holders.
Answer: A
NEW QUESTION # 24
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. 58%.
- C. 33.3%.
- D. 50%.
Answer: B
NEW QUESTION # 25
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. Convexity.
- B. Yield curve
- C. Credit spread.
- D. Modified duration.
Answer: A
NEW QUESTION # 26
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. Training
- B. Marketing
- C. Planning
- D. Auditing
Answer: D
NEW QUESTION # 27
Of all the risk factors in loan pricing, which one of the following four choices is likely to be the least
significant?
- A. Exposure at default
- B. Probability of default
- C. Loss given default
- D. Duration of default
Answer: D
NEW QUESTION # 28
Which one of the following four alternatives correctly identifies the purpose of a clearinghouse in trading
activities?
- A. Reduction of market risk and credit risk
- B. Reduction of basis risk and mark-to-market risk
- C. Reduction of operational risk and credit risk
- D. Reduction of counterparty risk and liquidity risk
Answer: D
NEW QUESTION # 29
Which one of the following four option types has two strike prices?
- A. Shout options
- B. Range options
- C. Asian options
- D. American options
Answer: A
NEW QUESTION # 30
Over a long period of time DeltaBank has amassed a large equity option position. Which of the following risks
should be considered in this transaction?
I. Counterparty risk on long OTC option positions
II. Counterparty risk on short OTC option positions
III. Counterparty risk on long exchange-traded option positions
IV. Counterparty risk on short exchange-traded option positions
- A. II, III, IV
- B. II, III
- C. I
- D. I, II
Answer: C
NEW QUESTION # 31
Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration
measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield
curve?
- A. Take positions to reduce the duration
- B. Take positions to make the convexity zero
- C. Take positions to increase the duration
- D. Since the portfolio is duration hedged Sam does not need to take additional positions.
Answer: B
NEW QUESTION # 32
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