Lead2PassExam 2016-FRR Real Exam Question Answers Updated [Dec 12, 2023]
Easily To Pass New GARP 2016-FRR Dumps with 345 Questions
NEW QUESTION # 194
Which one of the following four statements regarding commodity exchanges is INCORRECT?
- A. Commodity markets are mot liquid than debt markets.
- B. Banks trade in OTC contracts primarily to serve clients and facilitate client hedging and lending.
- C. Banks have no natural direct exposure to commodities.
- D. Customers rarely trade physical commodities with banks.
Answer: A
NEW QUESTION # 195
To achieve leverage in long positions, a bank can use the following strategy:
I. Securities may be purchased with borrowed funds using a bank loan from the broker.
II. Securities may be borrowed on margin by taking a loan from a broker.
III. Securities may be purchased and used in a repo transaction to generate cash for further security purchases.
IV. The bank may enter into a derivative transaction, such as a total return swap, that requires little to no
collateral but mimics the performance of a long or short position in the underlying instrument.
- A. I, II
- B. II, IV
- C. I, III
- D. I, II, III, IV
Answer: D
NEW QUESTION # 196
Which of the following statements about the interest rates and option prices is correct?
- A. If rho is positive, rising interest rates decrease option prices.
- B. As interest rates fall, all options will rise in value.
- C. As interest rates rise, all options will rise in value.
- D. If rho is positive, rising interest rates increase option prices.
Answer: D
NEW QUESTION # 197
Which one of the following four statements correctly defines a typical carry trade?
- A. A bank borrows funds in a high-interest currency and invests the funds into high-yield emerging market
debt. - B. A bank borrows funds in a low-interest currency, accumulates reserves, and lends in another
low-interest currency. - C. A bank borrows funds in a low-interest currency and places the funds on deposit in a high-interest
currency. - D. A bank borrows funds in a high-interest currency and places the funds in a long-term low volatility
investment vehicle.
Answer: C
NEW QUESTION # 198
On January 1, 2010 the TED (treasury-euro dollar) spread was 0.9%, and on January 31, 2010 the TED spread
is 0.4%. As a risk manager, how would you interpret this change?
- A. Increase in credit risk on T-bills.
- B. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.
- C. The decrease in the TED spread indicates an increase in credit risk on interbank loans.
- D. Increase in interest rates on both interbank loans and T-bills.
Answer: B
NEW QUESTION # 199
To estimate a partial change in option price, a risk manager will use the following formula:
- A. Partial change in option price = Delta x Gamma x Change in underlying price
- B. Partial change in option price = Delta x (1+ Change in underlying price)
- C. Partial change in option price = Delta x Gamma x (1+ Change in underlying price)
- D. Partial change in option price = Delta x Change in underlying price
Answer: D
NEW QUESTION # 200
Which one of the four following statements about back testing the VaR models is correct?
Back testing requires
- A. Comparing the predictive ability of VaR on a daily basis to the realized daily profits and losses.
- B. Plotting the daily profit and losses along with the ranges predicted by VaR models
- C. Plotting VaR forecasts against the proportion of daily losses exceeding the average loss.
- D. Determining the proportion of daily profits exceeding those predicted by VaR.
Answer: A
NEW QUESTION # 201
Oliver McCarthy owns a portfolio of bonds. Which of the following choices equals the modified duration of
Oliver's portfolio?
- A. Value-weighted average modified duration of the component bonds
- B. Minimum of the modified durations of the component bonds
- C. Maximum of the modified durations of component bonds
- D. Coupon-weighted average modified duration of the component bonds
Answer: A
NEW QUESTION # 202
The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential failure
of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed,
the principal and the contractual interest payments, would be called ___.
- A. Credit risk; performance risk
- B. Market risk; credit risk
- C. Performance risk; credit risk
- D. Credit risk; market risk
Answer: C
NEW QUESTION # 203
The probability of default on a bond is 3%, and in the case of default, investors expect to lose 70% of their
investment. The bond's risk premium is 1.9%. The expected loss and the credit spread of the bond are,
respectively:
- A. 1.6% and 2.5%.
- B. 1.6% and 3.5%.
- C. 2.1% and 3%.
- D. 2.1% and 4%.
Answer: D
NEW QUESTION # 204
A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While
this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell
order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss
than if the market had remained stable. However, if the market drops, the customer will benefit from the
incorrect accounting and gain from this trade. This trading scenario can serve as an example that
- A. Market risk in this transaction can magnify operational risk.
- B. Liquidity risk in this transaction can magnify operational risk.
- C. Strategic risk in this transaction can magnify operational risk.
- D. Credit risk in this transaction can magnify operational risk.
Answer: A
NEW QUESTION # 205
Which one of the following four features is NOT a typical characteristic of futures contracts?
- A. Daily margin calls
- B. Traded Over-the-counter only
- C. Fixed notional amount per contract
- D. Fixed dates for delivery
Answer: B
NEW QUESTION # 206
Which one of the following four options is NOT a typical component of a currency swap?
- A. Periodic exchange of interest payments in different currencies
- B. A final currency exchange
- C. Denomination of the original notional amount into a foreign currency
- D. An initial currency exchange of the notional amount
Answer: C
NEW QUESTION # 207
Forward rate agreements (FRA) are:
- A. Exchange traded derivative contracts that allow banks to take positions in forward interest rates.
- B. Exchange traded derivative contracts that allow banks to take positions in future exchange rates.
- C. OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term
interest rates by relying on long-term funding. - D. OTC derivative contracts that allow banks to take positions in forward interest rates.
Answer: D
NEW QUESTION # 208
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 # 209
Which one of the following four statements about market risk is correct? Market risk is
- A. The exposure to an adverse change in the market value of portfolios and financial instruments caused by
a change in market prices or rates. - 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 caused by the
failure of the counterparty to meet its obligations. - D. The maximum likely loss in the market value of portfolios and financial instruments over a given period
of time.
Answer: A
NEW QUESTION # 210
Of all the risk factors in loan pricing, which one of the following four choices is likely to be the least
significant?
- A. Duration of default
- B. Exposure at default
- C. Probability of default
- D. Loss given default
Answer: A
NEW QUESTION # 211
Which one of the following four regulatory drivers for operational risk management includes risk and control
requirements for financial statements in the United States?
- A. The Markets in Financial Instruments Directive
- B. Basel II Accord
- C. The Sarbanes-Oxley Act
- D. Solvency II
Answer: C
NEW QUESTION # 212
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