100% Pass Top-selling 2016-FRR Exams - New 2023 GARP Pratice Exam
Financial Risk and Regulation Dumps 2016-FRR Exam for Full Questions - Exam Study Guide
NEW QUESTION # 113
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. 5%
- B. 1%
- C. 3%
- D. 10%
Answer: B
NEW QUESTION # 114
Which one of the following four statements about the "market-maker" trading strategy is INCORRECT?
- A. A market maker that attracts buy and sell orders can make a profit from the spread quoted between the
buy and sell price. - B. This risk in this strategy is that traders have to take positions that may quickly incur a loss.
- C. A market maker can benefit from the market information she gets from the trades she is asked to
execute. - D. This strategy is independent of market liquidity and number of other market makers.
Answer: D
NEW QUESTION # 115
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, III
- B. I, III, IV
- C. I
- D. II
Answer: B
NEW QUESTION # 116
To estimate the price of gold forwards, an investment analyst focuses on the cost of holding physical gold
(bullion) and the cost of shorting the same. Given that physical gold spot price is $1,000, the annual risk-free
rate is 5%, and the gold lease rate equals 2% annually, the analyst's best estimate of the gold forward price to
equal
- A. $1070
- B. $1100
- C. $950
- D. $1030
Answer: D
NEW QUESTION # 117
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. decrease by 1.5.
- B. decrease by 0.5.
- C. increase by 0.5.
- D. increase by 1.5.
Answer: B
NEW QUESTION # 118
As Japan ___ its budget deficits and ___ its dependence on debt, the Japanese currency, JPY, would ___ in
value against other currencies.
- A. Reduces, reduces, depreciate
- B. Increases, reduces, appreciate
- C. Reduces, reduces, appreciate
- D. Reduces, increases, depreciate
Answer: C
NEW QUESTION # 119
To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a
credit portfolio manager should use the following metric:
- A. Expected loss
- B. Factor sensitivity
- C. Credit VaR
- D. Unexpected loss
Answer: A
NEW QUESTION # 120
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. £300 million pounds
- C. £500 million pounds
- D. £900 million pounds
Answer: B
NEW QUESTION # 121
Which one of the four following non-statistical risk measures are typically not used to quantify market risk?
- A. Net closed positions
- B. Basis point values
- C. Option sensitivities
- D. Convexity
Answer: A
NEW QUESTION # 122
Which one of the following four statements on factors affecting the value of options is correct?
- A. As the value of underlying security increases, the value of the put option increases.
- B. As volatility rises, options increase in value.
- C. As interest rates rise and option's rho is positive, option prices will decrease.
- D. As time passes, options will increase in value.
Answer: B
NEW QUESTION # 123
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is
collateralized with $55,000. The loan also has an annual expected default rate of 2%, and loss given default at
50%. In this case, what will the bank's expected loss be?
- A. $1,000
- B. $750
- C. $500
- D. $1,300
Answer: C
NEW QUESTION # 124
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, III, and IV
- B. II and IV
- C. I, II and III
- D. I and II
Answer: D
NEW QUESTION # 125
A large multinational bank is concerned that their duration measures may not be accurate since the yield curve
shifts are not parallel. Which of the following statements would be typically observed regarding variability of
interest rates?
- A. Short-term rates are more variable than long-term rates.
- B. Short-term rates are equally variable as long-term rates.
- C. Short-term rates and long-term rates always move in opposite directions.
- D. Short-term rates are less variable than long-term rates.
Answer: A
NEW QUESTION # 126
Company A needs to provide a risk probability/frequency score for its RCSA program. If the event is likely to
happen once in 2 years, then the frequency score will be equal to:
- A. 0.5
- B. 0
- C. 0.2
- D. 1
Answer: A
NEW QUESTION # 127
Which of the following assets on the bank's balance sheet has greatest endogenous liquidity risk?
- A. A 2-year U.S treasury bond
- B. A 3-year subprime mortgage
- C. A 10-year U.S treasury bond
- D. A 1-week corporate loan with a AAA rated company
Answer: B
NEW QUESTION # 128
Which one of the following statements accurately describes market risk tolerance?
- A. Market risk tolerance is the maximum likely gain in the market value of portfolios over a given period
of time. - B. Market risk tolerance is the maximum loss the bank is willing to bear due to fluctuations in market
prices and rates. - C. Market risk tolerance is the minimum loss the bank is willing to bear due to fluctuations in market prices
and rates. - D. Market risk tolerance is the maximum loss in the market value of financial instruments caused by the
failure of the counterparty to meet its obligations.
Answer: B
NEW QUESTION # 129
Unico Delta stock is trading at $20 per share, its annualized dividend yield is 5% and the 12-month LIBOR is
3%. Given these statistics, the 12-month futures contact will trade at:
- A. $20.04
- B. $40.08
- C. $30.04
- D. $10.08
Answer: A
NEW QUESTION # 130
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. $0.7 million
- B. $0.4 million
- C. $0.5 million
- D. $1 million
Answer: C
NEW QUESTION # 131
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