GARP 2016-FRR Real Exam Questions Test Engine Dumps Training With 345 Questions
2016-FRR Actual Questions Answers PDF 100% Cover Real Exam Questions
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NEW QUESTION 27
An options trader for a large institutional investor takes a long equity option position. Which of the following
risks need to be considered when taking this position?
I. All the risks of underlying equities
II. Perceived volatility changes
III. Future dividends yields
IV. Risk-free interest rates
- A. III, IV
- B. II, III
- C. I, II
- D. I, II, III, IV
Answer: D
NEW QUESTION 28
What is the role of market risk management function within a bank?
I. Control and minimize the risks the bank should take.
II. Establish a comprehensive market risk policy framework.
III. Define, approve and monitor risk limits.
IV. Perform stress tests and other qualitative risk assessments.
- A. II, III, and IV
- B. I and III
- C. I, II and III
- D. II and IV
Answer: A
NEW QUESTION 29
Which one of the following four relationships should be used to price equity forwards or futures?
- A. Equity forward or futures price = market equity price x (1 + risk-free rate - expected dividend rate)t
- B. Equity forward or futures price = market equity price + (1 + risk-free rate + expected dividend rate)t
- C. Equity forward or futures price = market equity price + (1 + risk-free rate - expected dividend rate)t
- D. Equity forward or futures price = market equity price x (1 - risk-free rate - expected dividend rate)t
Answer: A
NEW QUESTION 30
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 bank would lose more than USD 10 million in a year.
- D. There is a 5% chance that the least loss would be USD 10 million in a year.
Answer: C
NEW QUESTION 31
What is a common implicit assumption that is made when computing VaR using parametric methods?
- A. The mean of and the standard deviations of returns are both constant.
- B. The mean and standard deviation of returns change periodically in response to crises.
- C. The expected returns are constant, but the standard deviation changes over time.
- D. The standard deviations of returns are constant, but the mean changes over time.
Answer: A
NEW QUESTION 32
Which one of the four following statements about the Risk Adjusted Return on Capital (RAROC) is correct?
RAROC is the ratio of:
- A. Risk to the profitability of a trading portfolio or a business unit within the bank.
- B. Profitability to the risk of a trading portfolio or bank business unit.
- C. Profitability to the expected return of a trading portfolio or bank business unit.
- D. Value-at-risk to the profitability of a trading portfolio or a business unit.
Answer: B
NEW QUESTION 33
Which one of the following four statements regarding the current value of a transaction and its purposes is
INCORRECT?
- A. Counterparty credit risk calculations are made by analyzing the current values of all deals with the same
counterparty. - B. Profit and loss calculations are made by comparing the current values to the intrinsic values.
- C. Margin call by futures exchanges are based on the current market value.
- D. For cash settled instrument the final market value is used to settle the transaction with the counterparty
Answer: B
NEW QUESTION 34
An asset and liability manager for a large financial institution has to recognize that retail products ___ include
embedded options, which are often not rationally exercised, while wholesale products ___ carry penalties for
repayment or include rights to terminate wholesale contracts on very different terms than are common in retail
products.
- A. Hardly ever; typically
- B. Frequently; rarely
- C. Hardly ever; rarely
- D. Frequently; typically
Answer: D
NEW QUESTION 35
A portfolio manager is interested in computing risk measures for his bond investment portfolio. Which of the
following measures the sensitivity of duration to interest rates?
- A. Credit spread.
- B. Modified duration.
- C. Convexity.
- D. Yield curve
Answer: C
NEW QUESTION 36
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. I and II
- C. I, II and III
- D. II and IV
Answer: B
NEW QUESTION 37
For which one of the following four reasons do corporate customers use foreign exchange derivatives?
I. To lock in the current value of foreign-denominated receivables
II. To lock in the current value of foreign-denominated payables
III. To lock in the value of expected future foreign-denominated receivables
IV. To lock in the value of expected future foreign-denominated payables
- A. I and IV
- B. II and III
- C. II
- D. I, II, III, IV
Answer: D
NEW QUESTION 38
Bank Sigma takes a long position in the oil futures market that requires a 2% margin, i.e., the bank has to
deposit 2% of the value of the contract with the broker. The futures contracts were priced at $50 per barrel
(bbl) at inception, and rose by $5 to $55. The VaR on the position is estimated to be $10. What is the return on
this transaction on a risk adjusted basis?
- A. 50%
- B. 500%
- C. 20%
- D. 10%
Answer: A
NEW QUESTION 39
James Johnson bought a 3-year plain vanilla bond that has yield of 4.7% and 4% coupon paid annually, for
$87,139. Macauley's duration of the bond is 2.94 years. Rate volatility is 20% of the yield. The bond's
annualized volatility is therefore:
- A. 2.81%.
- B. 3.15%.
- C. 2.64%.
- D. 2.90%.
Answer: C
NEW QUESTION 40
By foreign exchange market convention, spot foreign exchange transactions are to be exchanged at the spot
date based on the following settlement rule:
- A. Two-day rule
- B. Three-day rule
- C. One-day rule
- D. Four-day rule
Answer: A
NEW QUESTION 41
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. The 1-year treasury markets
- B. Foreign exchange markets
- C. The 6-month LIBOR markets
- D. Overnight interbank markets
Answer: D
NEW QUESTION 42
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. I, III
- B. I, II, III
- C. II, III
- D. I, II
Answer: C
NEW QUESTION 43
Which one of the following four statements best describes challenges of delta-normal method of mapping
options positions?
Delta-normal method understates
- A. Risks of long option positions for calls and overstates risks of short option positions for puts.
- B. Risks of long option positions for puts and overstates risks of short option positions for calls.
- C. Risks of long and short positions for both calls and puts.
- D. Risks of short option positions and overstates risks of long option positions for both calls and puts.
Answer: D
NEW QUESTION 44
Which of the following factors can cause obligors to default at the same time?
I. Obligors may be harmed by exposures to similar risk factors simultaneously.
II. Obligors may exhibit herd behavior.
III. Obligors may be subject to the sampling bias.
IV. Obligors may exhibit speculative bias.
- A. I, II
- B. I
- C. III, IV
- D. II, III
Answer: A
NEW QUESTION 45
A bank customer can use either a plain vanilla option or an option contract with volumetric flexibility to
reduce the following risks:
I. Market Risk
II. Basis Risk
III. Operational Risk
- A. I, II
- B. I
- C. II, III
- D. II
Answer: A
NEW QUESTION 46
When operating in a heavily traded currency, a commercial and retail bank's treasury is likely to focus on
cover operations. Which one of the following four commercial and retails treasury's operations is known as a
cover operation?
- A. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer
price. - B. Mitigating liquidity risk, or effectively managing the balance sheet and its funding.
- C. Managing the net interest rate risk in the banking book directly with market counterparties by operating
a derivatives trading desk. - D. Ensuring that the risks generated by the bank's business are mitigated in the market.
Answer: D
NEW QUESTION 47
In hedging transactions, derivatives typically have the following advantages over cash instruments:
I. Lower credit risk
II. Lower funding requirements
III. Lower dealing costs
IV. Lower capital charges
- A. I, III
- B. I, II
- C. II, IV
- D. I, II, III, IV
Answer: D
NEW QUESTION 48
To hedge equity exposure without buying or selling shares of stock or otherwise rebalancing the portfolio, a
risk manager could initiate
- A. A long debt-for-equity swap.
- B. A long total return swap position.
- C. A short debt-for-equity swap.
- D. A short total return swap position.
Answer: D
NEW QUESTION 49
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Difficulty in writing GARP 2016-FRR
The difficulty level of writing the GARP 2016-FRR is high. The inquiries on the 2016-FRR are designed to assess your knowledge, skills, and practical abilities as a financial management professional. The passing score for this is also relatively high as compared with other certifications for professionals in this industry. This means that you have to have a good understanding of the subjects before you can attempt it. If you are not familiar with certain subjects, you should spend more time studying 2016-FRR exam dumps before scheduling a date to take 2016-FRR. It is advisable that you schedule multiple dates so that if one date does not work out for some reason, there will be others available to use instead. Edit your working schedule so that there are enough hours available to take the examination.
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