[Nov-2023] Verified GARP 2016-FRR Bundle Real Exam Dumps PDF
2016-FRR Dumps PDF New [2023] Ultimate Study Guide
NEW QUESTION # 44
Unico Delta stock is trading at $20 per share, its annualized dividend yield is 5% and the 12-month LIBOR is
3%. Given these statistics, the 12-month futures contact will trade at:
- A. $40.08
- B. $20.04
- C. $10.08
- D. $30.04
Answer: B
NEW QUESTION # 45
Which of the following attributes of duration gap model typically cause criticism?
I. Basis risk
II. Errors in the linear model
III. Costs of immunization
IV. Constant nature of calculation
- A. I, III, IV
- B. I, II
- C. I, II, III
- D. II, III, IV
Answer: C
NEW QUESTION # 46
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. 2.90%.
- B. 2.81%.
- C. 2.64%.
- D. 3.15%.
Answer: C
NEW QUESTION # 47
Which one of the following four statements represents a possible disadvantage of using total return swap to
manage equity portfolio risks?
- A. Similar to the formal portfolio rebalancing strategy, the total return receiver needs to modify the size of
the trading position. - B. The total return receiver does not have any voting rights.
- C. Similar to an equity forward position, the total return receiver does not get paid the dividend.
- D. The total return receiver needs to incur the transaction costs of establishing an equity position.
Answer: B
NEW QUESTION # 48
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 drop in value, while that effect will be amplified by a reduction in the value of its
fixed rate liabilities. - C. 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. - 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 # 49
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.
- A. II and III
- B. III and IV
- C. I only
- D. II, III, and IV
Answer: B
NEW QUESTION # 50
Which of the following statements regarding bonds is correct?
I. Interest rates on bonds are typically stated on an annualized rate.
II. Bonds can pay floating coupons that are directly linked to various interest rate indices.
III. Convertible bonds have an element of prepayment risk.
IV. Callable bonds have an element of equity risk.
- A. I and II
- B. I only
- C. I, II, and III
- D. II, III, and IV
Answer: A
NEW QUESTION # 51
On January 1, 2010 the TED (treasury-euro dollar) spread was 0.4%, and on January 31, 2010 the TED spread
is 0.9%. As a risk manager, how would you interpret this change?
- A. Increase in credit risk on T-bills.
- B. The decrease in the TED spread indicates an increase in credit risk on interbank loans.
- C. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.
- D. Increase in interest rates on both interbank loans and T-bills.
Answer: B
NEW QUESTION # 52
A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While
this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell
order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss
than if the market had remained stable. However, if the market drops, the customer will benefit from the
incorrect accounting and gain from this trade. This trading scenario can serve as an example that
- A. Strategic risk in this transaction can magnify operational risk.
- B. Credit risk in this transaction can magnify operational risk.
- C. Liquidity risk in this transaction can magnify operational risk.
- D. Market risk in this transaction can magnify operational risk.
Answer: D
NEW QUESTION # 53
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is
collateralized with $55,000. The loan also has an annual expected default rate of 2%, and loss given default at
50%. In this case, what will the bank's expected loss be?
- A. $1,000
- B. $500
- C. $1,300
- D. $750
Answer: B
NEW QUESTION # 54
A customer of EtaBank, Alfred Fall, fell on the marble floors of the bank and sustained substantial injuries.
Subsequently, he won a personal injury claim of $50,000 against EtaBank. How should EtaBank's operational
loss data event information database categorize this event?
- A. This event would qualify as "Legal Risk".
- B. This event would qualify as "Business Disruption and System Failures".
- C. This event would qualify as "Employment Practices and Workplace Safety".
- D. This event would not qualify as an operational risk event.
Answer: C
NEW QUESTION # 55
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 theta-hedging strategy.
- B. The delta-hedging strategy.
- C. The gamma-hedging strategy.
- D. The vega-hedging strategy.
Answer: B
NEW QUESTION # 56
All of the following factors generally explain the equity bid-offer spread in a market EXCEPT:
- A. Interest rates
- B. Market volatility
- C. Competition among market makers
- D. Market depth
Answer: A
NEW QUESTION # 57
Which one of the following four option types has two strike prices?
- A. American options
- B. Range options
- C. Asian options
- D. Shout options
Answer: D
NEW QUESTION # 58
Which one of the following four models is typically used to grade the obligations of small- and medium-size
enterprises?
- A. Causal models
- B. Credit rating models
- C. Historical frequency models
- D. Credit scoring models
Answer: D
NEW QUESTION # 59
Which one of the following four statements correctly defines a typical carry trade?
- A. A bank borrows funds in a high-interest currency and places the funds in a long-term low volatility
investment vehicle. - B. A bank borrows funds in a low-interest currency and places the funds on deposit in a high-interest
currency. - C. A bank borrows funds in a high-interest currency and invests the funds into high-yield emerging market
debt. - D. A bank borrows funds in a low-interest currency, accumulates reserves, and lends in another
low-interest currency.
Answer: B
NEW QUESTION # 60
Of all the risk factors in loan pricing, which one of the following four choices is likely to be the least
significant?
- A. Probability of default
- B. Duration of default
- C. Loss given default
- D. Exposure at default
Answer: B
NEW QUESTION # 61
To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements:
I. Bonds
II. Marketable loans
III. Credit card loans
- A. II
- B. II, III
- C. I
- D. I, II
Answer: D
NEW QUESTION # 62
The operational risk policy should include:
I. The firm's definition of risk
II. The governance of operational risk including who owns it, what it owns, and how issues should be
escalated
III. The main activities and elements that are managed by the operational risk function
- A. I, II
- B. II, III
- C. I, II, III
- D. I, III
Answer: C
NEW QUESTION # 63
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 may happen to the Delta's initial credit parameter and the value of its loan if the machinery industry
experiences adverse structural changes?
- A. Probability of default and loss at default may increase simultaneously, while duration rises causing the
loan value to decrease. - B. Probability of default and loss at default may increase simultaneously, while duration falls causing the
loan value to decrease. - C. Probability of default and loss at default may decrease simultaneously, while duration rises causing the
loan value to decrease. - D. Probability of default and loss at default may decrease simultaneously, while duration falls causing the
loan value to decrease.
Answer: B
NEW QUESTION # 64
To safeguard its capital and obtain insurance if the borrowers cannot repay their loans, Gamma Bank accepts
financial collateral to manage its credit risk and mitigate the effect of the borrowers' defaults. Gamma Bank
will typically accept all of the following instruments as financial collateral EXCEPT?
- A. Unrated bonds issued and traded on a recognized exchange
- B. Mutual fund shares and similar unit investment vehicles subject to daily quotes
- C. Commercial debts owed to a company in a form of receivables
- D. Equities and convertible bonds included in a main market index
Answer: C
NEW QUESTION # 65
Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions
in banks?
- A. Derivative
- B. Cash
- C. Basis
- D. Bond
Answer: B
NEW QUESTION # 66
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