GARP 2016-FRR Exam Dumps - PDF Questions and Testing Engine
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NEW QUESTION 164
When a credit risk manager analyzes default patterns in a specific neighborhood, she finds that defaults are
increasing as the stigma of default evaporates, and more borrowers default. This phenomenon constitutes
- A. Adverse selection
- B. Herd behavior
- C. Moral hazard
- D. Speculative bias
Answer: B
NEW QUESTION 165
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. Scenario analysis
- D. Compliance document preparation
Answer: D
NEW QUESTION 166
Which one of the following four statements represents the advantages of the historical sim-ulation method
when calculating VaR?
- A. Are only using loss probabilities that can be found in tables of the standard normal distribution.
- B. Solve the problem caused by incorrectly assuming that asset returns are normally distributed.
- C. Rely on current market data to describe the distribution of returns and determine volatilities.
- D. Are believed to be superior in accuracy predicting future levels of realized volatility.
Answer: B
NEW QUESTION 167
Which of the following bank events could stress the bank's liquidity position?
I. Obligations to fund assets like mortgages
II. Unusually large depositor withdrawals
III. Counterparty collateral calls
IV. Nonperforming assets
- A. IV
- B. III, IV
- C. I, II, III and IV
- D. I, II
Answer: C
NEW QUESTION 168
Gamma Bank is active in loan underwriting and securitization business, and given its collective credit
exposure, it will be typically most interested in the following types of portfolio credit risk:
I. Expected loss
II. Duration
III. Unexpected loss
IV. Factor sensitivities
- A. I
- B. I, III
- C. II
- D. I, III, IV
Answer: D
NEW QUESTION 169
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. 20%
- C. 500%
- D. 10%
Answer: A
NEW QUESTION 170
Which one of the following four exercise features is typical for the most exchange-traded equity options?
- A. American exercise feature
- B. Asian exercise feature
- C. European exercise feature
- D. A shout option exercise feature
Answer: A
NEW QUESTION 171
Jack Richardson wants to compute the 1-month VaR of a portfolio with a market value of USD 10 million,
with an average monthly return of 1% and average monthly standard deviation of 1.5%. What is the portfolio
VaR at 99% confidence level?
Probability Cumulative Normal distribution
0.90 1.282
0.91 1.341
0.92 1.405
0.93 1.476
0.94 1.555
0.95 1.645
0.96 1.751
0.97 1.881
0.98 2.054
0.99 2.326
- A. 246,750
- B. 348,900
- C. 164,500
- D. 232,600
Answer: B
NEW QUESTION 172
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 includes a risk assessment in addition to a control assessment.
- C. RCSA is subjective by nature.
- D. RCSA tests a control's effectiveness against set criteria and issues a pass/fail or level of effectiveness
score.
Answer: C
NEW QUESTION 173
Which one of the following four statements about regulatory capital for a bank is accurate?
- A. Regulatory capital is the lowest level of economic capital the bank should have to meet regulatory
requirement. - B. Regulatory capital is determined by rules imposed by an outside authority, such as a supervisor or
central bank. - C. Regulatory capital is less than the regulatory capital requirement.
- D. Regulatory capital reflects the economic tradeoffs of the bank as accurately as the bank can represent
them.
Answer: B
NEW QUESTION 174
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 175
A proprietary trading desk for a large bank hedges an Arab light OTC forward position with Brent crude oil
forwards. The trading desk benefits from using the most liquid OTC market to hedge, the market for the Brent
crude, but hedging its using the Brent contract, exposes itself to the following type of risk:
- A. Basis risk
- B. Seasonality risk
- C. Correlation risk
- D. Term risk
Answer: A
NEW QUESTION 176
By lowering the spread on lower credit quality borrowers, the bank will typically achieve all of the following
outcomes EXCEPT:
- A. Rapid growth
- B. Aggressively courting of new business
- C. Higher losses in case of default
- D. Lower probability of default
Answer: D
NEW QUESTION 177
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 178
A risk manager analyzes a long position with a USD 10 million value. To hedge the portfolio, it seeks to use
options that decrease JPY 0.50 in value for every JPY 1 increase in the long position. At first approximation,
what is the overall exposure to USD depreciation?
- A. His overall portfolio has the same exposure to USD as a portfolio that is short USD 10 million.
- B. His overall portfolio has the same exposure to USD as a portfolio that is long USD 10 million.
- C. His overall portfolio has the same exposure to USD as a portfolio that is short USD 5 million.
- D. His overall portfolio has the same exposure to USD as a portfolio that is long USD 5 million.
Answer: D
NEW QUESTION 179
Which one of the following changes would typically increase the price of a fixed income instrument, such as a
bond?
- A. Increase in demand for goods and services.
- B. Increase in risk premium.
- C. Increase in time to maturity.
- D. Decrease in inflation rates in a country.
Answer: D
NEW QUESTION 180
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. What interest rate should Alpha Bank charge
on the no-payment loan to Delta Industrial Machinery Corporation?
- A. 8%
- B. 9%
- C. 12%
- D. 10%
Answer: D
NEW QUESTION 181
Which one of the four following statements about consortium databases is correct?
Consortium databases
- A. Provide data to map risk categories with causes.
- B. Contain anonymous information.
- C. Gather information from news articles.
- D. Use data from the top 5% of the industry.
Answer: B
NEW QUESTION 182
Which of the following factors would typically increase the credit spread?
I. Increase in the probability of default of the issuer.
II. Decrease in risk premium.
III. Decrease in loss given default of the issuer.
IV. Increase in expected loss.
- A. I, II, and IV
- B. I
- C. II and III
- D. I and IV
Answer: D
NEW QUESTION 183
In the United States, Which one of the following four options represents the largest component of securitized
debt?
- A. Credit card loans
- B. Real estate loans
- C. Education loans
- D. Lines of credit
Answer: B
NEW QUESTION 184
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 swap that receives floating and pays fixed
- C. Index amortizing swap
- D. Interest rate cap
Answer: A
NEW QUESTION 185
From the bank's point of view, repricing the retail debt portfolio will introduce risks of fluctuations in:
I. Duration
II. Loss given default
III. Interest rates
IV. Bank spreads
- A. I
- B. II
- C. III, IV
- D. I, II
Answer: C
NEW QUESTION 186
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 187
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