Unique Top-selling 2016-FRR Exams - New 2021 GARP Pratice Exam
Financial Risk and Regulation Dumps 2016-FRR Exam for Full Questions - Exam Study Guide
NEW QUESTION 134
Which one of the four following statements about Basis point values is correct?
Basis point value:
- A. Refers to the change in the value of a fixed income position for a very small change yields.
- B. Is a risk sensitivity measure used to measure the point spread risk in the banking book.
- C. Is a widely used statistical tool used to measure market risk.
- D. Provides a quick estimate of the sensitivity of the bank's banking book, to increasing volatility in interest
rates.
Answer: A
NEW QUESTION 135
Which of the following attributes of duration gap model typically cause criticism?
I. Basis risk
II. Errors in the linear model
III. Costs of immunization
IV. Constant nature of calculation
- A. I, III, IV
- B. I, II, III
- C. II, III, IV
- D. I, II
Answer: B
NEW QUESTION 136
To reduce the variability of net interest income, Gamma Bank can swap positions that make its duration gap
equal to
- A. 0
- B. 1
- C. 2
- D. 0.5
Answer: C
NEW QUESTION 137
Bank Alpha is making a decision about lending 10-year loans in a sector that is fairly illiquid and is looking at
various options to fund the loans. Which of the following options to fund the loans exhibits the most
exogenous liquidity risk?
- A. Overnight interbank markets
- B. The 1-year treasury markets
- C. The 6-month LIBOR markets
- D. Foreign exchange markets
Answer: A
NEW QUESTION 138
The Treasury function of a bank typically manages all of the following components EXCEPT:
- A. Bank's liquidity
- B. Bank's capital
- C. Bank's assets and liabilities
- D. Bank's performance estimates
Answer: D
NEW QUESTION 139
Which one of the following four variables of the Black-Scholes model is typically NOT known at a point in
time?
- A. The underlying interest rates
- B. The time to maturity
- C. The future volatility of the exchange rates
- D. The underlying relevant exchange rates
Answer: C
NEW QUESTION 140
The data available to estimate the statistical distribution of bank losses is difficult to assemble for which of the
following reasons?
I. The needed data is vast in quantity.
II. The data requires bringing together significantly different measures of risk.
III. Some risks are difficult to quantify and hence the data might involve subjective elements.
- A. II, III
- B. I, II, III
- C. I, III
- D. I, II
Answer: A
NEW QUESTION 141
For a bank a 1-year VaR of USD 10 million at 95% confidence level means that:
- A. There is a 5% chance that the worst loss would be USD 10 million in a year.
- B. There is a 5% chance that the bank would lose less than USD 10 million in a year.
- C. There is a 5% chance that the least loss would be USD 10 million in a year.
- D. There is a 5% chance that the bank would lose more than USD 10 million in a year.
Answer: D
NEW QUESTION 142
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. $100.22 million
- B. $101.86 million
- C. $105 million
- D. $ 213.67 million
Answer: B
NEW QUESTION 143
Which one of the following four exotic option types has another option as its underlying asset, and as a result
of its construction is generally believed to be very difficult to model?
- A. Spread options
- B. Chooser options
- C. Binary options
- D. Compound options
Answer: D
NEW QUESTION 144
To hedge equity exposure without buying or selling shares of stock or otherwise rebalancing the portfolio, a
risk manager could initiate
- A. A long total return swap position.
- B. A long debt-for-equity swap.
- C. A short debt-for-equity swap.
- D. A short total return swap position.
Answer: D
NEW QUESTION 145
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. Customers rarely trade physical commodities with banks.
- D. Banks have no natural direct exposure to commodities.
Answer: A
NEW QUESTION 146
Securitization is the process by which banks
I. Issue bonds where the payment of interest and repayment of principal on the bonds depends on the cash flow
generated by a pool of bank assets.
II. Issue bonds where the bank has transferred its legal right to payment of interest and repayment of principal
to bondholders.
III. Sell illiquid assets.
- A. I
- B. I, III
- C. I, II, III
- D. I, II
Answer: C
NEW QUESTION 147
Which one of the following statements describes Macauley's duration?
- A. The percentage change in a bond price when the yields change by 1%.
- B. The present value of the future cash flows of a bond calculated at a yield equal to 1%.
- C. The weighted average life of the bond payments.
- D. The change in value of a bond when yields increase by 1 basis point.
Answer: C
NEW QUESTION 148
Which one of the following four metrics represents the difference between the expected loss and unexpected
loss on a credit portfolio?
- A. Probability of default
- B. Loss given default
- C. Credit VaR
- D. Modified duration
Answer: C
NEW QUESTION 149
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 exposure at default (EAD) be?
- A. $75,000
- B. $25,000
- C. $105,000
- D. $50,000
Answer: D
NEW QUESTION 150
What is a common implicit assumption that is made when computing VaR using parametric methods?
- A. The standard deviations of returns are constant, but the mean changes over time.
- B. The expected returns are constant, but the standard deviation changes over time.
- C. The mean of and the standard deviations of returns are both constant.
- D. The mean and standard deviation of returns change periodically in response to crises.
Answer: C
NEW QUESTION 151
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