GARP Financial Risk and Regulation (FRR) Series - 2016-FRR Exam Practice Test
Which one of the following four alternatives lists the three most widely traded currencies on the global foreign exchange market, as of April 2007, in the decreasing order of market share? EUR is the abbreviation of the European euro, JPY is for the Japanese yen, and USD is for the United States dollar, respectively.
Correct Answer: D
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
A trader inadvertently booked a trade with incorrect information. A subsequent market move resulted in a gain to the bank. Should the bank include this amount of gain into its operational loss event data program?
I. The bank should include this gain in its operational loss event data program as a gain realized due to operational risk events.
II. The bank should include this gain in its operational loss event data program as it indicates that a control failed or a process is flawed.
III. The bank should include this event in its operational loss event data program and record the gain as a loss resulting from operational risk.The bank should not include this event in its operational loss event data program as it is not a loss event, but a market risk event.
I. The bank should include this gain in its operational loss event data program as a gain realized due to operational risk events.
II. The bank should include this gain in its operational loss event data program as it indicates that a control failed or a process is flawed.
III. The bank should include this event in its operational loss event data program and record the gain as a loss resulting from operational risk.The bank should not include this event in its operational loss event data program as it is not a loss event, but a market risk event.
Correct Answer: D
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
A large multinational bank is concerned that their duration measures may not be accurate since the yield curve shifts are not parallel. Which of the following statements would be typically observed regarding variability of interest rates?
Correct Answer: B
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
Returns on two assets show very strong positive linear relationship. Their correlation should be closest to which of the following choices?
Correct Answer: C
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
Which of the following statements about the option gamma is correct? Gamma is the
I. Second derivative of the option value with respect to the volatility.
II. Percentage change in option value per percentage change in the price of the underlying instrument.
III. Second derivative of the value function with respect to the price of the underlying instrument.
IV. Rate of change of the option delta with respect to changes in the underlying price.
I. Second derivative of the option value with respect to the volatility.
II. Percentage change in option value per percentage change in the price of the underlying instrument.
III. Second derivative of the value function with respect to the price of the underlying instrument.
IV. Rate of change of the option delta with respect to changes in the underlying price.
Correct Answer: D
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
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. Hence, the loss rate in this case will be
Correct Answer: D
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
A credit analyst wants to determine a good pricing strategy to compensate for credit decisions that might have been made incorrectly. When analyzing her credit portfolio, the analyst focuses on the spreads in each loan to determine if they are sufficient to compensate the bank for all of the following costs and risks EXCEPT.
Correct Answer: C
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
Which one of the following four models is typically used to grade the obligations of small- and medium-size enterprises?
Correct Answer: A
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
A risk analyst is considering how to reduce the bank's exposure to rising interest rates. Which of the following strategies will help her achieve this objective?
I. Reducing the average repricing time of its loans
II. Increasing the average repricing time of its deposits
III. Entering into interest rate swaps
IV. Improving earnings capacity and increasing intermediated funds
I. Reducing the average repricing time of its loans
II. Increasing the average repricing time of its deposits
III. Entering into interest rate swaps
IV. Improving earnings capacity and increasing intermediated funds
Correct Answer: A
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
AlphaBank's management is evaluating how changes in its business environment could materially impact risk categories. As a result, bank's management decides to implement the structure, which facilitates the discussion in an integrative context, spanning market, credit, and operational risk factors, and encourages transparency and communication between risk disciplines. Which one of the following four approaches should the management choose to achieve this strategic goal?
Correct Answer: B
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
A bank owns a portfolio of bonds whose composition is shown below.
What is the modified duration of the portfolio?
What is the modified duration of the portfolio?
Correct Answer: A
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no credit losses.
Correct Answer: A
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).
Which one of the following four statements on the seniority of corporate bonds is incorrect?
Correct Answer: D
Vote an answer
Explanation: Only visible for Fast2test members. You can sign-up / login (it's free).