Free 2016-FRR Braindumps Download Updated on Nov 21, 2024 with 344 Questions

GARP 2016-FRR Exam Practice Test Questions

GARP 2016-FRR Exam is a comprehensive test that covers a wide range of topics related to financial risk and regulation. It consists of two parts, Part I and Part II, each of which contains 80 multiple-choice questions. The topics covered in the exam include market risk, credit risk, operational risk, liquidity risk, regulatory compliance, and risk management frameworks. 2016-FRR exam is designed to test the candidate's knowledge and understanding of these topics, as well as their ability to apply this knowledge in practical scenarios. Passing 2016-FRR exam demonstrates a high level of proficiency and expertise in financial risk management and regulatory compliance.

GARP 2016-FRR (Financial Risk and Regulation) Exam is a comprehensive certification program designed for professionals working in the financial industry. 2016-FRR exam is conducted by the Global Association of Risk Professionals (GARP) and is recognized globally as a standard for measuring the expertise of professionals in the field of financial risk management and regulation.

 

NEW QUESTION # 38
If a bank is long £500 million pounds, short £300 million in delta-equivalent pound options, and long £100
million in pound-denominated stocks, what is the amount of pound exposure that would be shown in the
aggregated risk reports?

• A. £800 million pounds
• B. £500 million pounds
• C. £300 million pounds
• D. £900 million pounds

Answer: C

NEW QUESTION # 39
Using a forward transaction, Omega Bank buys 100 metric tones of aluminum for delivery in six-months' time.
However, after two months, the bank becomes concerned with the potential fluctuations in aluminum prices
and wants to hedge its potential exposure against a possible decline in aluminum prices. Which one of the
following four strategies could the bank use to offset the risk from its current exposure to aluminum as it sets
the price for selling the commodity in four-months' time?

• A. Buy an aluminum forward contract
• B. Sell an aluminum futures contract
• C. Sell an aluminum forward contract
• D. Buy an aluminum futures contract

Answer: B

NEW QUESTION # 40
A bank customer can use either a plain vanilla option or an option contract with volumetric flexibility to
reduce the following risks:
I. Market Risk
II. Basis Risk
III. Operational Risk

• A. II
• B. II, III
• C. I
• D. I, II

Answer: D

NEW QUESTION # 41
Bank Muri has $4 million in cash and $5 million in loans coming due tomorrow with an expected default rate
of 1%. The proceeds will be deposited overnight. The bank owes $ 9 million on a securities purchase that
settles in two days and pays off $8 million in commercial paper in three days that is not expected to renew. On
day 2, $1 million in loans is coming in with an expected default rate of 1% and on day 3, $2 million in loans is
coming in with expected default rate of 2%. How much should the bank plan to raise in order to avoid liquidity
problems?

• A. $500 million
• B. $550 million
• C. $508 million
• D. $510 million

Answer: D

NEW QUESTION # 42
Which one of the following changes would typically increase the price of a fixed income instrument, such as a
bond?

• A. Increase in risk premium.
• B. Decrease in inflation rates in a country.
• C. Increase in time to maturity.
• D. Increase in demand for goods and services.

Answer: B

NEW QUESTION # 43
The main building blocks of an operational risk framework include all of the following options EXCEPT:

• A. Compliance document preparation
• B. Risk and control self-assessment
• C. Loss data collection
• D. Scenario analysis

Answer: A

NEW QUESTION # 44
Which one of the following four global markets for financial assets or instruments is widely believed to be the most liquid?

• A. Fixed income market
• B. Foreign exchange market.
• C. Commodities market
• D. Equity market.

Answer: B

Explanation:
The foreign exchange market (forex or FX) is widely believed to be the most liquid financial market in the world. This market operates 24 hours a day and involves the highest volume of trading compared to other financial markets. The high liquidity is due to the significant volume of transactions conducted by various participants, including governments, financial institutions, corporations, and individual traders. The vast number of buyers and sellers ensures that trades can be executed quickly and at stable prices.

NEW QUESTION # 45
When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no credit losses.

• A. Symmetric; greater
• B. Asymmetric; greater
• C. Asymmetric; less
• D. Symmetric; less

Answer: B

Explanation:
* The distribution of portfolio credit losses is typically asymmetric, meaning it is not evenly distributed.
This asymmetry arises because the likelihood of small losses is much higher than the likelihood of very large losses.
* The likelihood of total losses, which includes both expected and unexpected losses, is greater than the likelihood of no credit losses. This is because while small losses happen more frequently, large losses, although less frequent, can occur and can be significant.
References:
* How Finance Works: "The distribution of credit losses is asymmetric because the likelihood of total losses is greater than the likelihood of no credit losses."

NEW QUESTION # 46
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, III
• B. II, III, IV
• C. I, II, IV
• D. I, II, III, IV

Answer: D

Explanation:
When trading exotic options, various risks need to be considered. Spot foreign exchange risks (I) involve the risk associated with the current exchange rate fluctuations. Forward foreign exchange risks (II) pertain to the risks related to future exchange rate changes agreed upon in forward contracts. Plain vanilla options risks (III) include the standard risks associated with basic option trading, such as volatility and time decay.
Option-specific risks (IV) refer to the unique risks inherent in the specific exotic option being traded, such as path-dependency, barrier levels, and the complexity of modeling their payoffs. All these risks collectively impact the trading of exotic options.

NEW QUESTION # 47
James Johnson purchased a plain vanilla bond that has modified duration of 10 and convexity of 0.5. If yields increase by 1%, its modified duration is expected to

• A. increase by 1.5.
• B. increase by 0.5.
• C. decrease by 1.5.
• D. decrease by 0.5.

Answer: D

Explanation:
* Formula for modified duration change:
* Change in modified duration = Convexity * Change in yield
* Given:
* Initial modified duration = 10
* Convexity = 0.5
* Change in yield = 1%
* Calculation:
* Change in modified duration = 0.5 * 1% = 0.5
* Since the yield increases, the modified duration decreases by 0.5.
References Calculation based on standard formulas for duration and convexity.

NEW QUESTION # 48
Which of the following statements regarding CDO-squared is correct?
I. CDO-squared use other CDOs and CMOs as collateral.
II. Risk assessment of CDO-squared is almost impossible due to their complexity.
III. CDO-squared have lower credit risk than CMOs but higher than CDOs.

• A. I only
• B. II and III
• C. I and II
• D. I, II, and III

Answer: C

NEW QUESTION # 49
Which of the following statements about a bank's behavior regarding Risk Adjusted Return on Capital (RAROC) is correct?
I. A bank should always seek to maximize their overall RAROC.
II. A bank should consider investing in a business even with negative RAROC if it increases the RAROC of the bank as a whole.
III. A bank should minimize its overall RAROC by controlling the absolute and relative amount of risk of its businesses.
IV. A bank should maximize its RAROC by always investing in a new business that maximizes the RAROC for that business unit.

• A. II and IV
• B. I and II
• C. II, III, and IV
• D. I, II and III

Answer: B

Explanation:
A bank's behavior regarding RAROC should consider:
* Maximizing overall RAROC: This ensures that the bank is efficiently managing its capital and generating the highest possible returns relative to the risks taken.
* Investing in a business even with negative RAROC if it increases the RAROC of the bank as a whole: This can be beneficial if the investment contributes to the diversification or other strategic goals that enhance the bank's overall risk-return profile.
These principles guide banks in optimizing their capital allocation and improving their financial performance.

NEW QUESTION # 50
Which one of the following four attributes would likely help a trader using exchange-traded options to establish a leveraged position?

• A. Option positions have the same cash risks as a margined short futures purchase.
• B. Option positions have the same credit risks as a margined long forward.
• C. Unlimited losses for long option positions
• D. Higher degrees of exposure at less cash cost

Answer: D

Explanation:
To establish a leveraged position using exchange-traded options, a trader would benefit from attributes that increase exposure while minimizing initial cash outlay.
* Higher degrees of exposure at less cash cost: Options provide significant leverage because they allow traders to control large positions with a relatively small amount of capital. This leverage is achieved through the options' pricing mechanism, where the premium paid is significantly less than the actual value of the underlying asset.
* Unlimited losses for long option positions: This is not an advantage for establishing a leveraged position. In fact, long option positions have limited losses, confined to the premium paid.
* Option positions have the same credit risks as a margined long forward: This is incorrect. Options have different risk profiles compared to margined long forwards, primarily because options confer the right
* but not the obligation to execute the contract.
* Option positions have the same cash risks as a margined short futures purchase: This is incorrect.
Options and futures have different risk and margin requirements, and they do not expose traders to the same cash risks.
Thus, the most advantageous attribute for a trader using exchange-traded options to establish a leveraged position is the higher degrees of exposure at less cash cost.
ReferencesSource: How Finance Works

NEW QUESTION # 51
To estimate the interest charges on the loan, an analyst should use one of the following four formulas:

• A. Loan interest = Risk-free rate + Probability of default x Loss given default - Spread
• B. Loan interest = Risk-free rate - Probability of default x Loss given default - Spread
• C. Loan interest = Risk-free rate + Probability of default x Loss given default + Spread
• D. Loan interest = Risk-free rate - Probability of default x Loss given default + Spread

Answer: C

NEW QUESTION # 52
Which one of the following four statements on the seniority of corporate bonds is incorrect?

• A. Senior bonds typically have lower credit spreads than junior bonds with the same maturity and payment
  characteristics.
• B. In bankruptcy, holders of senior bonds are paid in full before any holders of subordinated bonds receive
  payment.
• C. Junior bonds always pay higher coupons than subordinated bonds.
• D. Seniority refers to the priority of a bond in bankruptcy.

Answer: C

NEW QUESTION # 53
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