Updated Free GARP 2016-FRR Test Engine Questions with 345 Q&As
The Best Financial Risk and Regulation 2016-FRR Professional Exam Questions
NEW QUESTION # 177
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. Maximum of the modified durations of component bonds
- C. Minimum of the modified durations of the component bonds
- D. Coupon-weighted average modified duration of the component bonds
Answer: A
NEW QUESTION # 178
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 have 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, the actual probability would be underestimated by:
- A. 1%
- B. 4%
- C. 2%
- D. 3%
Answer: B
NEW QUESTION # 179
All of the following performance statistics typically benefit country's creditworthiness EXCEPT:
- A. Low inflation
- B. High degrees of investment
- C. Low degrees of savings
- D. Low unemployment
Answer: C
NEW QUESTION # 180
Which of the following bank events could stress the bank's liquidity position?
I. Maturing of bank debt
II. Repurchase agreements
III. Futures margins
IV. Staff turnover
- A. I, II
- B. III, IV
- C. IV
- D. I, II and III
Answer: D
NEW QUESTION # 181
A corporate bond was trading with 2%probability of default and 60% loss given default. Due to the credit
crisis the probability of default increased to 10% and the loss given default increased to 100%. Assuming that
the risk premium remained the same how did the credit spread change?
- A. Decreased by 880 basis points
- B. Increased by 880 basis points
- C. Increased by 1120 basis points
- D. Increased by 1000 basis points
Answer: B
NEW QUESTION # 182
The value of which one of the following four option types is typically dependent on both the final price of its
underlying asset and its own price history?
- A. Stout options
- B. Power options
- C. Basket options
- D. Chooser options
Answer: A
NEW QUESTION # 183
Which one of the following statements about futures contracts is correct?
I. Futures contracts are subject to the same risks as the underlying instruments.
II. Futures contracts have additional interest rate risk die to the future delivery date.
III. Futures contracts traded in a clearinghouse system are exposed to credit risk with numerous counterparties.
- A. I, III
- B. II, III
- C. I, II, III
- D. I
Answer: D
NEW QUESTION # 184
Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading
strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should
Unico take to limit its risk exposure?
- A. A market-maker strategy that allows the traders to quote a buy and sell price to customers and other
banks and to trade at the relevant price on the sell side of the market. - B. A matched book strategy that allows the trading desk to match all customer positions immediately with
an equal and opposite position by trading internally or with another bank. - C. A covering strategy that manages positions in the product by executing covering deals or hedging deal at
the discretion of the trading des. - D. A passive hedging strategy that allows the traders to price transactions with customers and other banks,
at the relevant bid price on the market.
Answer: B
NEW QUESTION # 185
To improve the culture and awareness of the operational risk, Gamma Bank's CRO decides to promote three
activities within her organization. Which one of the following four activities is NOT typically used to develop
an operational risk framework?
- A. Marketing
- B. Planning
- C. Auditing
- D. Training
Answer: C
NEW QUESTION # 186
Which of the following factors are typically included in standard operational risk definitions?
I. Human errors
II. Process failure
III. Systems failure
IV. Unexpected events
- A. I and IV
- B. II and III
- C. I, II and III
- D. I and II
Answer: C
NEW QUESTION # 187
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, II, and III
- B. II and III
- C. I only
- D. I and II
Answer: D
NEW QUESTION # 188
Which one of the four following activities is NOT a component of the daily VaR computing process?
- A. Producing the VaR report.
- B. Updating individual risk factor models.
- C. Updating factor interrelationships.
- D. Computing portfolio risk by delta-normal or delta-gamma method.
Answer: D
NEW QUESTION # 189
Which one of the following four statements correctly identifies the Basel II Accord's definition of operational
risk?
- A. Operational risk is the risk of loss resulting from inadequate or failed processes, people and systems or
from external events. - B. Operational risk is a risk arising from execution of a company's business functions.
- C. Operational risk is a form of risk that summarizes the risks a company or firm undertakes when it
attempts to operate within a given field or industry. - D. Operational risk is all the risk that is not captured by market and credit risks.
Answer: A
NEW QUESTION # 190
Mega Bank holds a $250 million mortgage loan portfolio, which reprices every 5 years at LIBOR + 10%. The
bank also has $150 million in deposits that reprices every month at LIBOR + 3%. What is the amount of Mega
Bank's rate sensitive assets?
- A. $100 million
- B. $200 million
- C. $250 million
- D. $150 million
Answer: C
NEW QUESTION # 191
Modified duration of a bond measures:
- A. The percentage change in a bond price when yields increase by 1 basis point.
- B. The percentage change in a bond price when the yields change by 1%.
- C. The present value of the future cash flows of a bond calculated at a yield equal to 1%.
- D. The change in value of a bond when yields increase by 1 basis point.
Answer: B
NEW QUESTION # 192
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. What interest rate should Alpha Bank charge
on the no-payment loan to Delta Industrial Machinery Corporation?
- A. 12%
- B. 8%
- C. 9%
- D. 10%
Answer: D
NEW QUESTION # 193
Which one of the following four statements about planning for the operational risk framework is
INCORRECT?
- A. An operational risk framework is a complex and evolving challenge, and to keep its development under
control it is important to apply strong project management skills to the design and implementation of
each new element. - B. Planning for the operational risk framework involves setting clear goals, realistic milestones and
achievable deliverables that add value. - C. Planning for the operational risk framework suggests that short-term planning and focus on immediate
benefits is strongly preferred to the long-term planning approach. - D. Once the elements of an operational risk framework are up and running, they need to be monitored to
ensure they maintain their integrity and do not deteriorate over time.
Answer: C
NEW QUESTION # 194
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 widely used statistical tool used to measure market risk.
- C. Provides a quick estimate of the sensitivity of the bank's banking book, to increasing volatility in interest
rates. - D. Is a risk sensitivity measure used to measure the point spread risk in the banking book.
Answer: A
NEW QUESTION # 195
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