2021 Realistic Verified Free GARP 2016-FRR Exam Questions
2016-FRR Real Exam Questions and Answers FREE
NEW QUESTION 57
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. 1%
- C. 5%
- D. 10%
Answer: B
NEW QUESTION 58
A key function of treasuries in commercial/retail banks is:
I. To manage the interest margin of the banks.
II. To focus on underwriting risk.
III. To ensure strong earnings.
IV. To increase profit margins.
- A. II
- B. II, III
- C. I
- D. III, IV
Answer: C
NEW QUESTION 59
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. Credit spread.
- B. Yield curve
- C. Modified duration.
- D. Convexity.
Answer: D
NEW QUESTION 60
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 measures how the economy is doing compared to the bank.
- D. Economic capital is determined by rules imposed by an external authority.
Answer: B
NEW QUESTION 61
Gamma Bank has $300 million in loans and $200 million in deposits. If the modified duration of the loans is
estimated to be 2, and the modified duration of the deposits is estimated to be 1, then the change in Gamma
Bank's equity value per 1% change in yield will be:
- A. -$2 million
- B. -$4 million
- C. -$3 million
- D. -$1 million
Answer: B
NEW QUESTION 62
Interest rate swaps are:
- A. 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. - 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. 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.
Answer: A
NEW QUESTION 63
Which one of the following four statements regarding commodity exchanges is INCORRECT?
- A. Banks have no natural direct exposure to commodities.
- B. Commodity markets are mot liquid than debt markets.
- C. Banks trade in OTC contracts primarily to serve clients and facilitate client hedging and lending.
- D. Customers rarely trade physical commodities with banks.
Answer: B
NEW QUESTION 64
Which one of the following four features is NOT a typical characteristic of futures contracts?
- A. Traded Over-the-counter only
- B. Daily margin calls
- C. Fixed dates for delivery
- D. Fixed notional amount per contract
Answer: A
NEW QUESTION 65
Suppose that a regulator deems all corporate debt to have the same risk level. Which of the following behavior
of banks would be an example of regulatory arbitrage?
- A. Banks shift their exposure to more risky corporate debt.
- B. Banks decrease their exposure to corporate debt.
- C. Banks increase their exposure to corporate debt.
- D. Banks shift their exposure to less risky corporate debt.
Answer: A
NEW QUESTION 66
Which one of the following four relationships should be used to price equity forwards or futures?
- A. Equity forward or futures price = market equity price x (1 - risk-free rate - expected dividend rate)t
- B. Equity forward or futures price = market equity price x (1 + risk-free rate - expected dividend rate)t
- C. Equity forward or futures price = market equity price + (1 + risk-free rate - expected dividend rate)t
- D. Equity forward or futures price = market equity price + (1 + risk-free rate + expected dividend rate)t
Answer: B
NEW QUESTION 67
A bank has a Var estimate of $100 million. It is considering a new transaction which has a correlation of 0.35
with the current portfolio and a standalone VaR estimate of $5 million. What would be the new VaR for the
bank if it carried out the transaction?
- A. $101.86 million
- B. $105 million
- C. $ 213.67 million
- D. $100.22 million
Answer: A
NEW QUESTION 68
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 over a given period
of time. - B. The exposure to an adverse change in the market value of portfolios and financial instruments caused by
a change in market prices or rates. - C. The exposure to an adverse change in the credit quality in portfolios or of financial instruments.
- D. The maximum likely loss in the market value of portfolios and financial instruments caused by the
failure of the counterparty to meet its obligations.
Answer: B
NEW QUESTION 69
Which of the following about the ratios between various Tiers of capital is not a requirement of the Basel
Committee?
- A. Upper Tier 2 capital may only equal 30% of core capital.
- B. Tier 2 capital cannot exceed 50% of the bank's total regulatory capital.
- C. Innovative instruments in Tier 1 are limited to a maximum of 15% of Tier 1 capital.
- D. Lower Tier 2 capital may only equal 50% of core capital.
Answer: C
NEW QUESTION 70
Which one of the four following statements about Basis point values is correct?
Basis point value:
- A. Is a widely used statistical tool used to measure market risk.
- B. Refers to the change in the value of a fixed income position for a very small change yields.
- C. Provides a quick estimate of the sensitivity of the bank's banking book, to increasing volatility in interest
rates. - D. Is a risk sensitivity measure used to measure the point spread risk in the banking book.
Answer: B
NEW QUESTION 71
Which one of the following four statements about the relationship between exchange rates and option values is
correct?
- A. As the dollar depreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases. - B. As the dollar appreciates relative to the pound, the right to sell dollars at a fixed pound exchange rate
increases. - C. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases. - D. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
decreases.
Answer: C
NEW QUESTION 72
The value of which one of the following four option types is typically dependent on both the final price of its
underlying asset and its own price history?
- A. Basket options
- B. Chooser options
- C. Power options
- D. Stout options
Answer: D
NEW QUESTION 73
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. 2.0%
- B. 1.0%
- C. 2.5%
- D. 3.0%
Answer: A
NEW QUESTION 74
To reduce the variability of net interest income, Gamma Bank can swap positions that make its duration gap
equal to
- A. 0.5
- B. 0
- C. 1
- D. 2
Answer: B
NEW QUESTION 75
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