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Free Financial Risk and Regulation 2016-FRR Official Cert Guide PDF Download
Advantages of the GARP 2016-FRR
There are numerous advantages of the GARP 2016-FRR Certification.
- One of the most attractive advantages is the fact that it provides you with international recognition.
- This will allow you to advance your career rapidly within the financial management industry. Wikis can also be used to provide you with an understanding of the different concepts covered in 2016-FRR.
- As a certified professional, you will be able to apply for jobs or promotions within companies across borders.
- If you are not able to survive the examination on your first try, you can simply schedule another date. But by doing this, you will still be able to access all of your study materials for up to 12 months after your first attempt. Machine learning and Sono mock tests are available online for this 2016-FRR. You can download them and make your preparation easier.
NEW QUESTION # 69
Which one of the following four statements correctly identifies disadvantages of using the economic capital?
- A. Since banks are putting their money at risk they have an incentive to increase economic capital.
- B. Economic capital may do not take into consideration the regulatory requirements.
- C. The economic capital models used by banks may be subject to significant model risk.
- D. Economic capital estimates the level of expected losses.
Answer: C
NEW QUESTION # 70
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. II, III
- B. I, II
- C. I
- D. II
Answer: B
NEW QUESTION # 71
Which of the following statements is a key difference between customer loans and interbank loans?
- A. Customers are less credit-worthy than banks on average and hence yields are higher on average for
customer loans as compared to interbank loans - B. Customer loans are easier to sell than interbank loans
- C. Customer loans are of shorter duration than interbank loans
- D. Interbank loans are more customized than commercial loans
Answer: A
NEW QUESTION # 72
Which one of the following four statements regarding commodity derivative risks is INCORRECT?
- A. In most commodities, the longest term contracts are the most volatile, while the shortest term forward
contract are the least volatile. - B. Some commodities can be both in backwardation and a have a strong seasonal element.
- C. Calendar spreads represent a special case of basis risk and occur when the relative prices of commodity
futures do not come in alignment and the trader becomes exposed to the absolute price movements. - D. Because of the different demand/supply balance in each region and the cost of transporting the oil
between regions, a tanker of Brent crude oil in the UK will have a different value to a UK buyer than a
tanker of Arab light crude oil in Singapore, which results in the basis risk.
Answer: A
NEW QUESTION # 73
According to Basel II what constitutes Tier 2 capital?
- A. Debt that is not subordinated to equity and innovative capital products that would count as Tier 1 capital
and excluding perpetual non-cumulative preference shares. - B. Equity capital and debt together.
- C. Debt that is subordinate to equity.
- D. Core capital excluding undisclosed reserves and general reserves that the bank may make against its
expected loan losses.
Answer: A
NEW QUESTION # 74
Gamma Bank estimates its monthly portfolio volatility at 5%.The portfolio's annual volatility is closest to
which of the following?
- A. 30%
- B. 17%
- C. 35%
- D. 8%
Answer: B
NEW QUESTION # 75
The Treasury function of a bank typically manages all of the following components EXCEPT:
- A. Bank's performance estimates
- B. Bank's capital
- C. Bank's liquidity
- D. Bank's assets and liabilities
Answer: A
NEW QUESTION # 76
By lowering the spread on lower credit quality borrowers, the bank will typically achieve all of the following
outcomes EXCEPT:
- A. Rapid growth
- B. Higher losses in case of default
- C. Aggressively courting of new business
- D. Lower probability of default
Answer: D
NEW QUESTION # 77
In the United States, stock investors must comply with the Regulation T of the Federal Reserve Bank and may
borrow up to ___ of the value of the securities from their brokers.
- A. 40%
- B. 30%
- C. 50%
- D. 60%
Answer: C
NEW QUESTION # 78
Modified duration of a bond measures:
- A. The present value of the future cash flows of a bond calculated at a yield equal to 1%.
- B. The percentage change in a bond price when the yields change by 1%.
- C. The percentage change in a bond price when yields increase by 1 basis point.
- D. The change in value of a bond when yields increase by 1 basis point.
Answer: B
NEW QUESTION # 79
By foreign exchange market convention, spot foreign exchange transactions are to be exchanged at the spot
date based on the following settlement rule:
- A. One-day rule
- B. Four-day rule
- C. Two-day rule
- D. Three-day rule
Answer: C
NEW QUESTION # 80
Which one of the following areas does not typically report into a central operational risk function?
- A. Business continuity planning
- B. Geopolitical and strategic planning
- C. Embedded operational risk coordinators or specialists or managers
- D. Information security
Answer: B
NEW QUESTION # 81
Which one of the following four exercise features is typical for the most exchange-traded equity options?
- A. A shout option exercise feature
- B. European exercise feature
- C. Asian exercise feature
- D. American exercise feature
Answer: D
NEW QUESTION # 82
Which one of the four following statements about technology systems for managing operational risk event
data is incorrect?
- A. Operational risk loss event data collection software can be internally developed.
- B. Operational risk event databases are independent elements of the operational risk management
framework. - C. Operational risk event databases are always integrated with the other components of the operational risk
management program. - D. The implementation of a new operational risk event loss database has to incorporate an analysis of the
advantages and disadvantages of external systems.
Answer: C
NEW QUESTION # 83
Rising TED spread is typically a sign of increase in what type of risk among large banks?
I. Credit risk
II. Market risk
III. Liquidity risk
IV. Operational risk
- A. I only
- B. II only
- C. I and IV
- D. I, II, and III
Answer: A
NEW QUESTION # 84
Which of the following statements depicts a difference between funding liquidity risks and trading liquidity
risks?
- A. Funding liquidity risks are concerned with the ability of the bank to fund deposits withdrawals while
trading liquidity risks are concerned with the change in bid-offer spreads of asset values. - B. Funding liquidity risks are short term risks while trading liquidity risks are longer term risks.
- C. Funding liquidity risks are associated with how fast prices move in the market while trading liquidity
risks originate out of bank trades. - D. Funding liquidity risks are associated only with the bank assets while trading liquidity risks are
associated with both assets and liabilities of the bank.
Answer: A
NEW QUESTION # 85
Which one of the following four statements about market risk is correct? Market risk is
- A. The maximum likely loss in the market value of portfolios and financial instruments over a given period
of time. - B. The maximum likely loss in the market value of portfolios and financial instruments caused by the
failure of the counterparty to meet its obligations. - C. The exposure to an adverse change in the market value of portfolios and financial instruments caused by
a change in market prices or rates. - D. The exposure to an adverse change in the credit quality in portfolios or of financial instruments.
Answer: C
NEW QUESTION # 86
Which one of the following four mathematical option pricing models is used most widely for pricing European
options?
- A. The Black model
- B. The Heston model
- C. The Garman-Kohlhagen model
- D. The Black-Scholes model
Answer: D
NEW QUESTION # 87
Which one of the following four options does NOT represent a benefit of compensating balances to the bank?
- A. Compensating balances allow the bank to net some of the exposure they may have in case of default, by
taking funds from these specific deposit account one the borrower defaults. - B. Since the compensating balances reduce the next amount lent to the borrower, the earned return on the
loan is increased, further widening the bank's interest rate margin and profitability. - C. Since the compensating balances cannot be withdrawn at short notice, if at all, they are not considered
transaction accounts and are able to provide a stable funding to the bank, reducing its reliance on more
volatile external inter-bank based funding sources. - D. Compensation balances influence the expected loss rate of the bank given the default obligor and
improve capital structure by controlling obligor type and avoiding payment delays.
Answer: D
NEW QUESTION # 88
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 has 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, what would be the probability of a cumulative $40 million loss from these two
mortgage borrowers?
- A. 0.1%
- B. 10%
- C. 1%
- D. 0.01%
Answer: C
NEW QUESTION # 89
Which of the following statements presents an advantage of using risk and control self-assessments (RCSA) in
the operational risk framework?
I. RCSA provides very accurate scoring of risks and controls due to its subjective nature.
II. RCSA program provides insight into risks that exist in a firm, but that may or may not have occurred
before.
III. RCSA program can produce biased but transparent operational risk reporting.
IV. RCSA program allows each department to take ownership of its own risks and controls.
- A. I, II and III
- B. II and IV
- C. I and III
- D. II, III, and IV
Answer: B
NEW QUESTION # 90
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