PDF (New 2022) Actual GARP 2016-FRR Exam Questions
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NEW QUESTION 145
The main building blocks of an operational risk framework include all of the following options EXCEPT:
- A. Compliance document preparation
- B. Loss data collection
- C. Risk and control self-assessment
- D. Scenario analysis
Answer: A
NEW QUESTION 146
To ensure good risk management which of the following should be true about the CRO role and function?
- A. The CRO should not be involved with the setting of risk limits.
- B. The CRO should receive compensation that is directly determined by the profit of the trading desk.
- C. To ensure efficient flow of information the CRO should not be independent of business units.
- D. The CRO should report to the CEO or the Board of Directors.
Answer: D
NEW QUESTION 147
A financial analyst is trying to distinguish credit risk from market risk. A $100 loan collateralized with $200 in
stock has limited ___, but an uncollateralized obligation issued by a large bank to pay an amount linked to the
long-term performance of the Nikkei 225 Index that measures the performance of the leading Japanese stocks
on the Tokyo Stock Exchange likely has more ___ than ___.
- A. Market risk; credit risk; market risk
- B. Market risk; market risk; credit risk
- C. Legal risk; market risk; credit risk
- D. Credit risk, legal risk; market risk
Answer: B
NEW QUESTION 148
James manages a loans portfolio. He has to evaluate a large number of loans to choose which of them he will
keep in the bank's books. Which one of the following four loans would he be most likely to sell to another
bank?
- A. Loan to a major customer who is also a director and a large owner.
- B. Loan to a borrower who has been delinquent previously, but now is performing as agreed.
- C. Loan to a commercial customer with a good payment history and collateral.
- D. Loan made to a highly risky borrower that is fully collateralized by the customer's deposits.
Answer: C
NEW QUESTION 149
What is the order in which creditors and shareholders get repaid in the event of a bank liquidation?
- A. Debt holders, depositors, shareholders.
- B. Depositors, debt holders, shareholders.
- C. Depositors, shareholders, depositors.
- D. Depositors, shareholders, debt holders.
Answer: B
NEW QUESTION 150
Which one of the following four options is NOT a typical component of a currency swap?
- A. A final currency exchange
- B. Periodic exchange of interest payments in different currencies
- C. An initial currency exchange of the notional amount
- D. Denomination of the original notional amount into a foreign currency
Answer: D
NEW QUESTION 151
Which of the following statements is a key difference between customer loans and interbank loans?
- A. Customer loans are easier to sell than interbank loans
- B. Customers are less credit-worthy than banks on average and hence yields are higher on average for
customer loans as compared to interbank loans - C. Customer loans are of shorter duration than interbank loans
- D. Interbank loans are more customized than commercial loans
Answer: B
NEW QUESTION 152
A bank has a large number of auto loans and would prefer to sell them to raise cash for more funding.
However, selling individual auto loans is difficult. What could the bank do?
- A. Merge with another bank.
- B. Obtain a stronger credit rating so that the bank could borrow at a cheaper rate.
- C. Package the loans into a securitized vehicle and sell the low risk portion of the portfolio.
- D. Set up a marketing team to sell individual loans to investors.
Answer: C
NEW QUESTION 153
Which of the following statements regarding collateralized debt obligations (CDOs) is correct?
I. CDOs typically have loans or bonds as underlying collateral.
II. CDOs generally less risky than CMOs.
III. There is a correlation among defaults in the CDO collateral which should be considered in valuation of
these complex instruments.
- A. I and III
- B. I only
- C. I, II, and III
- D. II and III
Answer: A
NEW QUESTION 154
Alpha Bank estimates its 1-month, 95% VaR is 30 million EUR. This means that in the next month, there is a
- A. 95% chance that AlphaBank can lose more than 30 million EUR.
- B. 95% chance that AlphaBank will at least lose 30 million EUR.
- C. 95% chance that AlphaBank can lose at most 30 million EUR.
- D. 95% chance that AlphaBank will lose exactly 30 million EUR.
Answer: C
NEW QUESTION 155
All of the following performance statistics typically benefit country's creditworthiness EXCEPT:
- A. Low degrees of savings
- B. High degrees of investment
- C. Low inflation
- D. Low unemployment
Answer: A
NEW QUESTION 156
In its VaR calculations, JPMorgan Chase uses an expected tail-loss methodology which approximates losses at
the 99% confidence level. This methodology consists of two subsequent steps to estimate the VaR. Which of
the following explains this two-step methodology?
- A. After VaR is computed at the 97% confidence level, the expected tail loss in excess of that confidence
level is determined, which is then compared with the VaR estimate at the 99% confidence level. - B. After VaR is computed at the 1% confidence level, the expected tail loss in excess of that confidence
level is determined, which and is then compared with the VaR estimate at the 98% confidence level. - C. After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence
level is determined, which is then compared with the VaR estimate at the 99% confidence level. - D. After VaR is computed at the 99% confidence level, the expected tail loss in excess of that confidence
level is determined, which is then compared with the VaR estimate at the 98% confidence level.
Answer: A
NEW QUESTION 157
A hedge fund trader buys options to establish an exposure in the currency market, thereby effectively
removing the risk of being able to participate in a gapping market. In this case the options premium represents
the price paid for eliminating the execution risk of
- A. The gamma-hedging strategy.
- B. The theta-hedging strategy.
- C. The vega-hedging strategy.
- D. The delta-hedging strategy.
Answer: D
NEW QUESTION 158
Which one of the following four options correctly identifies the core difference between bonds and loans?
- A. These instruments are subject to different credit counterparty regulations.
- B. These instruments cannot be used to estimate credit capital under provisions of the Basel II Accord.
- C. These instruments receive a different legal treatment.
- D. These instruments have different pricing drivers.
Answer: C
NEW QUESTION 159
Operational risk team for a large international bank is implementing business continuity planning (BCP).
Which of the following BCP activities fall within the definition of operational risk and represent Basel II
Accord's operational risk categories:
I. Damage to Physical Assets
II. Business Disruption and System Failures
III. Social Distancing Requirements
IV. Potential for Extreme Losses
- A. I and II
- B. III and IV
- C. I and IV
- D. III
Answer: A
NEW QUESTION 160
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.
- A. I and II
- B. I, II and III
- C. I and III
- D. II and III
Answer: A
NEW QUESTION 161
Which one of the following statements regarding collateralized mortgage obligations (CMO) is incorrect?
- A. CMOs are pools of mortgages that are divided according to the timing of cash flows.
- B. CMOs have senior tranches which are considered short-term, low-risk instruments by banks
- C. CMOs are asset-backed securities that have pools of collateralized debt obligations (CDOs) as
underlying collateral. - D. CMOs are generally less risky investment than CDOs.
Answer: C
NEW QUESTION 162
What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?
- A. The short term rates must fall enough to get some borrowers to borrow long-term and some lenders to
lend short-term. - B. The short term rates must rise enough to get some borrowers to borrow short-term and some lenders to
lend long-term. - C. The long term rates must rise enough to get some borrowers to borrow long-term and some lenders to
lend short-term. - D. The long term rates must rise enough to get some borrowers to borrow short-term and some lenders to
lend long-term.
Answer: D
NEW QUESTION 163
What is generally true of the relationship between a bond's yield and it's time to maturity when the yield curve
is upward sloping?
- A. The shorter the time to maturity of the bond, the higher its yield.
- B. The longer the time to maturity of the bond, the lower its yield.
- C. There is no relationship between the two
- D. The longer the time to maturity of the bond, the higher its yield.
Answer: D
NEW QUESTION 164
Which one of the following four statements about the relationship between exchange rates and option values is
correct?
- A. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
decreases. - B. As the dollar appreciates relative to the pound, the right to sell dollars at a fixed pound exchange rate
increases. - C. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases. - D. As the dollar depreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases.
Answer: C
NEW QUESTION 165
Which one of the following four statements about equity indices is INCORRECT?
- A. Equity indices are numerical calculations that reflect the performance of hypothetical equity portfolios.
- B. Capitalization-weighted equity indices are not generally considered better to track the performance of an
overall market. - C. Price-weighted equity indices give greater weight to shares trading at high prices.
- D. Equity indices do not trade in cash form, rather, they are meant to track the overall performance of an
equity market.
Answer: B
NEW QUESTION 166
As an example of the balance sheet effect, if rates rise, Delta Bank can expect:
- A. Its fixed rate assets to increase in value, while that effect will be amplified by a reduction in the value of
its fixed rate liabilities. - B. Its fixed rate assets to increase in value, although that effect will be offset by a reduction in the value of
its fixed rate liabilities. - C. Its fixed rate assets to drop in value, while that effect will be amplified by a reduction in the value of its
fixed rate liabilities. - D. Its fixed rate assets to drop in value, although that effect will be offset by a reduction in the value of its
fixed rate liabilities.
Answer: D
NEW QUESTION 167
Bank Milo 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
what days does the bank face negative cumulative liquidity?
- A. Day 3 only.
- B. Days 2 and 3.
- C. Day 2 only.
- D. Days 1, 2 and 3.
Answer: B
NEW QUESTION 168
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