Unique Top-selling 2016-FRR Exams - New 2024 GARP Pratice Exam
Financial Risk and Regulation Dumps 2016-FRR Exam for Full Questions - Exam Study Guide
The Global Association of Risk Professionals (GARP) is a not-for-profit organization that offers various certification programs to professionals in the field of risk management. One of their most popular certifications is the Financial Risk and Regulation (FRR) Series Certification. Financial Risk and Regulation (FRR) Series certification program is designed to help individuals understand and manage financial risks in today's complex and constantly changing financial environment.
NEW QUESTION # 125
Which one of the following four statements regarding floating rate bonds is incorrect?
- A. Floating rate bonds have coupon payments tied to floating interest rates or floating interest rate indexes.
- B. Floating rate bonds typically have less price risk than fixed rate bonds.
- C. Floating rate bonds only have a small degree of interest rate risk.
- D. Floating rate bonds are very sensitive to changes in interest rates.
Answer: D
Explanation:
Floating rate bonds have coupon payments that are tied to a floating interest rate or index, such as LIBOR.
This means their coupon payments adjust periodically with changes in the underlying interest rates. Due to this mechanism, floating rate bonds typically have less price risk compared to fixed-rate bonds because their coupon payments reset in line with current market rates. Hence, floating rate bonds are generally not very sensitive to changes in interest rates since the adjustments in coupon payments help maintain their value.
Therefore, the statement that floating rate bonds are very sensitive to changes in interest rates is incorrect.
NEW QUESTION # 126
Which one of the four following statements regarding minimum loss data standards is not correct?
- A. The loss data program must comprehensively capture all material activities.
- B. The loss data entry may include descriptive information about the drivers or causes of the loss event.
- C. The loss data entry should only include the date when the event was reported.
- D. The loss data entry must include the actual loss amount.
Answer: C
NEW QUESTION # 127
Which one of the following four statements about regulatory capital for a bank is accurate?
- A. Regulatory capital is the lowest level of economic capital the bank should have to meet regulatory
requirement. - B. Regulatory capital reflects the economic tradeoffs of the bank as accurately as the bank can represent
them. - C. Regulatory capital is determined by rules imposed by an outside authority, such as a supervisor or
central bank. - D. Regulatory capital is less than the regulatory capital requirement.
Answer: C
NEW QUESTION # 128
Financial regulators in a European country are considering banning trading in highly complex derivative
instruments that are not settled through a centralized clearinghouse. This ban can result in:
I. The value of the country's currency dropping
II. Counterparties involved in trading of these derivative instruments failing to fulfill their obligations
III. The business model relying on these instruments failing
IV. Certain activities becoming illegal
- A. II, III, IV
- B. II, III
- C. I, IV
- D. I, II
Answer: A
NEW QUESTION # 129
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. $550 million
- B. $500 million
- C. $508 million
- D. $510 million
Answer: D
NEW QUESTION # 130
The risk management department of VegaBank wants to set guidelines on commodity carry trades. Which of
the following strategies should she pursue to achieve a profitable commodity carry?
I. Buy short-term commodity futures and sell longer-dated position when the curve is in contango.
II. Buy short-term commodity futures and sell longer-dated position when the curve is in backwardation.
III. Buy long-term commodity futures and sell shorter-dated positions when the curve is in contango.
IV. Buy long-term commodity futures and sell shorter-dated positions when the curve is in backwardation.
- A. I, III
- B. II, IV
- C. I, II
- D. I, IV
Answer: D
NEW QUESTION # 131
What is a difference between currency swaps and interest rate swaps?
- A. Currency swaps are OTC derivative contracts.
- B. Currency swaps allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.
- C. Currency swaps do not require the exchange of notional principal on maturity.
- D. Currency swaps generate foreign exchange rate risk in addition to interest rate risk.
Answer: D
Explanation:
Currency swaps and interest rate swaps differ primarily in the risks they manage and generate. While both are OTC derivative contracts, currency swaps involve the exchange of principal and interest payments in one currency for principal and interest payments in another currency. This not only involves managing interest rate risk but also introduces foreign exchange rate risk, as fluctuations in currency exchange rates can affect the value of the payments exchanged.
NEW QUESTION # 132
ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use
to finance their own lending. Individually, each of the mortgage companies has an exposure at default (EAD)
of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk
department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were
modeled as independent risks, what would be the probability of a cumulative $40 million loss from these two
mortgage borrowers?
- A. 1%
- B. 10%
- C. 0.1%
- D. 0.01%
Answer: A
NEW QUESTION # 133
A credit portfolio manager analyzes a large retail credit portfolio. Which of the following factors will represent
typical disadvantages of market-linked credit risk drivers?
I. Need to supply a large number of input parameters to the model
II. Slow computation speed due to higher simulation complexity
III. Non-linear nature of the model applicable to a specific type of credit portfolios
IV. Need to estimate a large number of unknown variable and use approximations
- A. III, IV
- B. I, II
- C. II, III
- D. I
Answer: B
NEW QUESTION # 134
Which of the following statements about parametric and nonparametric methods for calculating Value-at-risk is correct?
- A. Both parametric and nonparametric methods make no assumptions about return distributions.
- B. Parametric methods make no assumptions about return distributions, and non-parametric methods assume returns are normally distributed.
- C. Parametric methods generally assume returns are normally distributed, and non-parametric methods make no assumptions about return distributions.
- D. Both parametric and nonparametric methods assume returns are normally distributed.
Answer: C
Explanation:
Value-at-Risk (VaR) can be calculated using either parametric or non-parametric methods. Parametric methods, such as the variance-covariance approach, typically assume that returns follow a normal distribution.
This assumption simplifies the calculations but may not always accurately reflect the true distribution of returns, especially in the presence of skewness and kurtosis.
On the other hand, non-parametric methods, such as historical simulation or Monte Carlo simulation, do not make any assumptions about the distribution of returns. Instead, they rely on actual historical return data or simulated data to estimate the VaR, allowing for more flexibility and potentially more accurate risk assessments in cases where the return distributions deviate significantly from normality.
NEW QUESTION # 135
A risk manager is analyzing a call option on the GBP with a vega of 0.02. When the perceived future volatility increases by 1%, the call option
- A. Increases in value by 0.02.
- B. Increases in value by 2.
- C. Decreases in value by 0.02.
- D. Decreases in value by 2.
Answer: A
Explanation:
Vega represents the sensitivity of an option's price to changes in the volatility of the underlying asset. If a call option on the GBP has a Vega of 0.02, this means that for every 1% increase in the perceived future volatility, the price of the call option will increase by 0.02. Therefore, if the volatility increases by 1%, the call option's value increases by 0.02.
NEW QUESTION # 136
Which of the following statements about endogenous and exogenous types of liquidity are accurate?
I. Endogenous liquidity is the liquidity inherent in the bank's assets themselves.
II. Exogenous liquidity is the liquidity provided by the bank's liquidity structure to fund its assets and maturing liabilities.
III. Exogenous liquidity is the non-contractual and contingent capital supplied by investors to support the bank in times of liquidity stress.
IV. Endogenous liquidity is the same as funding liquidity.
- A. I, III
- B. I, II
- C. II, III
- D. I, II, IV
Answer: B
Explanation:
* Statement I: "Endogenous liquidity is the liquidity inherent in the bank's assets themselves." This is correct as endogenous liquidity refers to the natural liquidity of the assets.
* Statement II: "Exogenous liquidity is the liquidity provided by the bank's liquidity structure to fund its assets and maturing liabilities." This is also correct as exogenous liquidity comes from external sources and the bank's liquidity management framework.
* Statement III: Incorrect because exogenous liquidity is not necessarily non-contractual and contingent capital; it is more about external sources like interbank loans and central bank facilities.
* Statement IV: Incorrect as endogenous liquidity is not the same as funding liquidity, which generally refers to the bank's ability to meet its liabilities.
ReferencesBased on detailed descriptions of endogenous and exogenous liquidity concepts in the document.
NEW QUESTION # 137
By foreign exchange market convention, spot foreign exchange transactions are to be exchanged at the spot
date based on the following settlement rule:
- A. Three-day rule
- B. Two-day rule
- C. Four-day rule
- D. One-day rule
Answer: B
NEW QUESTION # 138
A risk associate evaluating his current portfolio of assets and liabilities wants to determine how sensitive this
portfolio is to changes in interest rates. Which one of the following four metrics is typically used for this
purpose?
- A. Macaulay duration
- B. Effective duration
- C. Duration of default
- D. Modified duration
Answer: D
NEW QUESTION # 139
Which of the following measure describes the symmetry of a statistical distribution?
- A. Mean
- B. Kurtosis
- C. Skewness
- D. Standard deviation
Answer: C
Explanation:
Skewness measures the asymmetry of the return distribution. Positive skewness indicates a distribution with a longer or fatter right tail, while negative skewness indicates a distribution with a longer or fatter left tail. It is the correct measure for describing the symmetry of a statistical distribution.
NEW QUESTION # 140
The Treasury function of a bank typically manages all of the following components EXCEPT:
- A. Bank's performance estimates
- B. Bank's capital
- C. Bank's liquidity
- D. Bank's assets and liabilities
Answer: A
Explanation:
* Treasury Functions:
* Management of Assets and Liabilities: Treasury functions include managing the bank's balance
* sheet, which involves optimizing the mix of assets and liabilities.
* Management of Liquidity: Ensuring the bank has sufficient liquidity to meet its obligations.
* Management of Capital: Overseeing the capital adequacy to meet regulatory requirements and support the bank's operations and growth.
* Performance Estimates:
* Estimating and managing the bank's performance involves various departments, not typically the treasury function. Performance estimates would be more related to financial planning and analysis functions.
ReferencesSource: How Finance Works
NEW QUESTION # 141
All of the four following exotic options are path-independent options, EXCEPT:
- A. Power options
- B. Basket options
- C. Asian options
- D. Chooser options
Answer: C
Explanation:
Asian options are path-dependent options, which means their payoff depends on the average price of the underlying asset over a certain period, rather than just the price at maturity. This characteristic makes them path-dependent because the path taken by the asset's price during the life of the option affects the payoff, unlike path-independent options which only depend on the final price at maturity.
NEW QUESTION # 142
A risk manager is considering how to best quantify option price dynamics using mathematical option pricing
models. Which of the following variables would most likely serve as an input in these models?
I. Implicit parameter estimate based on observed market prices
II. Estimates of sensitivity of option prices to parameter changes
III. Theoretical option determination based on assumptions
- A. I, III
- B. I, II, III
- C. II
- D. II, III
Answer: B
NEW QUESTION # 143
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GARP 2016-FRR Exam is recognized globally as a leading certification for finance professionals who are interested in pursuing a career in financial risk management and regulation. 2016-FRR exam is designed to provide candidates with in-depth knowledge and skills required to understand and manage financial risks in a dynamic and constantly evolving financial market. Candidates who pass the exam are considered to have demonstrated their expertise in financial risk management and regulation, and are highly sought-after by employers in the finance industry.
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