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NEW QUESTION # 63
Which one of the following four statements about market risk is correct? Market risk is
- A. The maximum likely loss in the market value of portfolios and financial instruments caused by the
failure of the counterparty to meet its obligations. - B. The exposure to an adverse change in the credit quality in portfolios or of financial instruments.
- C. The maximum likely loss in the market value of portfolios and financial instruments over a given period
of time. - D. The exposure to an adverse change in the market value of portfolios and financial instruments caused by
a change in market prices or rates.
Answer: D
NEW QUESTION # 64
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?
I. Short term equity investments
II. Loans held to maturity
III. Mortgage servicing rights
IV. Derivatives used to manage asset/liability exposure.
- A. II, III, and IV
- B. II and III
- C. III and IV
- D. I and II
Answer: A
NEW QUESTION # 65
SigmaBank has many branches that offer the same products and services. Which one of the four following
statement presents an advantage of using RCSA questionnaire approach in the SigmaBank's operational risk
framework?
- A. This approach ensures that there has been full participation in the scoring, rather than a single view.
- B. The questionnaires are usually sent to specific nominated parties for completion.
- C. It provides a forum for an in-depth discussion of the operational risks in the firm.
- D. The results can be collected electronically and the responses compared to identify themes, trends and
areas of potential control weakness or elevated risk.
Answer: D
NEW QUESTION # 66
Which one of the following four statements about economic capital of a bank is correct?
- A. Economic capital is the present value of the earnings generated by the bank in the future.
- B. Economic capital reflects the possible losses that could occur based on the bank's own estimates of the
risks it is taking. - C. Economic capital is determined by rules imposed by an external authority.
- D. Economic capital measures how the economy is doing compared to the bank.
Answer: B
NEW QUESTION # 67
By foreign exchange market convention, spot foreign exchange transactions are to be exchanged at the spot
date based on the following settlement rule:
- A. One-day rule
- B. Three-day rule
- C. Two-day rule
- D. Four-day rule
Answer: C
NEW QUESTION # 68
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 # 69
James Johnson bought a coupon bond yielding 4.7% for $1,000. Assuming that the price drops to $976 when
yield increases to 4.71%, what is the PVBP of the bond.
- A. $976.
- B. $26.
- C. $870.
- D. $76.
Answer: B
NEW QUESTION # 70
Which one of the four following activities is NOT a component of the daily VaR computing process?
- A. Computing portfolio risk by delta-normal or delta-gamma method.
- B. Updating individual risk factor models.
- C. Producing the VaR report.
- D. Updating factor interrelationships.
Answer: A
NEW QUESTION # 71
An asset manager just bought a coupon paying bond with principal value $100,000 for $87,000 with a current
yield of 4.7%. He assumes that if the yields change to 5.7% the price of the bond would be $84,500. Based on
this assumption what is the modified duration of the bond?
- A. 2,507.
- B. 2.88.
- C. 2.97.
- D. 97.12.
Answer: B
NEW QUESTION # 72
What is the order in which creditors and shareholders get repaid in the event of a bank liquidation?
- A. Debt holders, depositors, shareholders.
- B. Depositors, shareholders, depositors.
- C. Depositors, shareholders, debt holders.
- D. Depositors, debt holders, shareholders.
Answer: D
NEW QUESTION # 73
When the cost of gold is $1,100 per bullion and the 3-month forward contract trades at $900, a commodity
trader seeks out arbitrage opportunities in this relationship. To capitalize on any arbitrage opportunities, the
trader could implement which one of the following four strategies?
- A. Short-sell physical gold and take a long position in the futures contract
- B. Take a long position in physical gold and short-sell the futures contract
- C. Take long positions in both physical gold and futures contract
- D. Short-sell both physical gold and futures contract
Answer: A
NEW QUESTION # 74
A corporate bond gives a yield of 6%. A same maturity government bond yields 2%. The probability of the
corporate bond defaulting is 2.5%. In case of default, investors expect to lose 60% of their investment. The
risk premium in the credit spread is:
- A. 1.5%
- B. 4.5%
- C. 0.5%
- D. 2.5%
Answer: D
NEW QUESTION # 75
Typically, which one of the following four option risk measures will be used to determine the number of
options to use to hedge the underlying position?
- A. Delta
- B. Rho
- C. Vega
- D. Theta
Answer: A
NEW QUESTION # 76
Which among the following are shortfalls of the static liquidity ladder model?
I. 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.
- A. III
- B. I, II, III
- C. I, III
- D. I, II
Answer: A
NEW QUESTION # 77
Which one of the following four statements represents a possible disadvantage of using total return swap to
manage equity portfolio risks?
- A. Similar to an equity forward position, the total return receiver does not get paid the dividend.
- B. Similar to the formal portfolio rebalancing strategy, the total return receiver needs to modify the size of
the trading position. - C. The total return receiver needs to incur the transaction costs of establishing an equity position.
- D. The total return receiver does not have any voting rights.
Answer: D
NEW QUESTION # 78
Which of the following are among the main uses of risk reports?
I. Identification of exceptional situations that require managerial attention.
II. Display the relative risk among different trades.
III. Specify how RAROC will be maximized within the bank.
IV. Estimate the overall risk levels of the bank.
- A. II and IV
- B. II and III
- C. II, III, and IV
- D. I, II and IV
Answer: D
NEW QUESTION # 79
Banks duration match their assets and liabilities to manage their interest risk in their banking book. A bank has
$100 million in interest rate sensitive assets and $100 million in interest rate sensitive liabilities. Currently the
bank's assets have a duration of 5 and its liabilities have a duration of 2. The asset-liability management
committee of the bank is in the process of duration-matching. Which of the following actions would best
match the durations?
- A. Decrease the duration of liabilities by 1 and increase the duration of assets by 1.
- B. Increase the duration of liabilities by 2 and decrease the duration of assets by 1.
- C. Increase the duration of liabilities by 2 and increase the duration of assets by 1.
- D. Decrease the duration of liabilities by 1 and decrease the duration of assets by 1.
Answer: B
NEW QUESTION # 80
Floating rate bonds typically have ________ duration which means they have ________ sensitivity to interest
rate changes.
- A. short, small
- B. long, small
- C. long, high
- D. short, high
Answer: A
NEW QUESTION # 81
To safeguard its capital and obtain insurance if the borrowers cannot repay their loans, Gamma Bank accepts
financial collateral to manage its credit risk and mitigate the effect of the borrowers' defaults. Gamma Bank
will typically accept all of the following instruments as financial collateral EXCEPT?
- A. Commercial debts owed to a company in a form of receivables
- B. Equities and convertible bonds included in a main market index
- C. Mutual fund shares and similar unit investment vehicles subject to daily quotes
- D. Unrated bonds issued and traded on a recognized exchange
Answer: A
NEW QUESTION # 82
Which type of risk does a bank incur on loans that are in the "pipeline", i.e loans that are in the process of
origination but not yet originated?
- A. Interest rate risk only
- B. The bank does not incur any risk since the loan is not yet originated
- C. Credit Risk only
- D. Interest rate risk and credit risk
Answer: A
NEW QUESTION # 83
Alpha Bank estimates that the annualized standard deviation of its portfolio returns equal 30%; The daily
volatility of the portfolio is closest to which of the following?
- A. 3.0%
- B. 2.0%
- C. 2.5%
- D. 1.0%
Answer: B
NEW QUESTION # 84
When trading exotic options, one needs to consider the following risks:
I. Spot foreign exchange risks
II. Forward foreign exchange risks
III. Plain vanilla options risks
IV. Option-specific risks
- A. I, II, IV
- B. I, III
- C. II, III, IV
- D. I, II, III, IV
Answer: D
NEW QUESTION # 85
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GARP 2016-FRR Certification Exam is a valuable credential for professionals who work in financial risk management and regulatory compliance. By earning this certification, professionals can demonstrate their expertise in the field and increase their career opportunities. The GARP 2016-FRR Certification Exam is recognized by leading financial institutions around the world, making it a highly respected and sought-after credential in the financial industry.
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