Top GARP 2016-FRR Courses Online - Updated [Jan-2022]
2016-FRR Practice Dumps - Verified By PassLeaderVCE Updated 345 Questions
NEW QUESTION 107
In early March, an energy trader takes a long position in natural gas futures for delivery in June, and hedges
this exposure by taking a position in futures for July delivery. These trades were executed on the expectation
that over time, the relative prices of the June and July contracts will come into alignment, the movement in
these two contracts will largely mirror each other, and as a result of this, the net exposure is minimized and the
position is protected against absolute price movements. However, if the two relative prices do not come into
alignment with each other due to the scarcity of any of the two traded contracts in the futures market, the
trader is likely to become exposed to the
- A. Quality basis
- B. Product basis
- C. Calendar spreads basis
- D. Location basis
Answer: C
NEW QUESTION 108
Since most consumers of natural gas do not have the ability to store it, they contract with gas suppliers to
receive a flow of natural gas equal to a specific number of MMBT's per day (MMBT is millions of British
Termal Units, the unit in which gas futures are quoted on the U.S. markets). To protect against price increases
with a bank, the natural gas consumer, concerned with the average price over the course of the month, will use
the following contracts:
- A. Compound options
- B. Flexible volume options
- C. Asian options
- D. American options
Answer: C
NEW QUESTION 109
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 110
A corporate bond was trading with 2%probability of default and 60% loss given default. Due to the credit
crisis the probability of default increased to 10% and the loss given default increased to 100%. Assuming that
the risk premium remained the same how did the credit spread change?
- A. Increased by 1000 basis points
- B. Decreased by 880 basis points
- C. Increased by 880 basis points
- D. Increased by 1120 basis points
Answer: C
NEW QUESTION 111
Most loans and deposits in the interbank market have a maturity of:
- A. More than 3 years but less than 5 years
- B. More than 10 years
- C. Less than one year
- D. More than 5 years but less than 10 years
Answer: C
NEW QUESTION 112
Alpha Bank estimates that the annualized standard deviation of its portfolio returns equal 30%; The daily
volatility of the portfolio is closest to which of the following?
- A. 1.0%
- B. 2.0%
- C. 2.5%
- D. 3.0%
Answer: B
NEW QUESTION 113
Which one of the four following statements about the Risk Adjusted Return on Capital (RAROC) is correct?
RAROC is the ratio of:
- A. Profitability to the expected return of a trading portfolio or bank business unit.
- B. Risk to the profitability of a trading portfolio or a business unit within the bank.
- C. Value-at-risk to the profitability of a trading portfolio or a business unit.
- D. Profitability to the risk of a trading portfolio or bank business unit.
Answer: D
NEW QUESTION 114
Except for the credit quality of the Credit Default Swap protection seller, the following relationship correctly
approximates the yield on a risk-free instrument:
- A. Bond + CDS
- B. Bond + CDS + Market Spread
- C. Bond - CDS - Market spread
- D. Bond - CDS
Answer: A
NEW QUESTION 115
To hedge equity exposure without buying or selling shares of stock or otherwise rebalancing the portfolio, a
risk manager could initiate
- A. A long total return swap position.
- B. A long debt-for-equity swap.
- C. A short debt-for-equity swap.
- D. A short total return swap position.
Answer: D
NEW QUESTION 116
James Johnson bought a coupon bond yielding 4.7% for $1,000. Assuming that the price drops to $976 when
yield increases to 4.71%, what is the PVBP of the bond.
- A. $976.
- B. $26.
- C. $870.
- D. $76.
Answer: B
NEW QUESTION 117
The Basel II Accord's operational risk definition excludes all of the following items EXCEPT:
- A. Reputational risk
- B. Geopolitical risk
- C. Strategic risk
- D. Legal risk
Answer: D
NEW QUESTION 118
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. Bond
- D. Basis
Answer: B
NEW QUESTION 119
The retail banking business of BankGamma has an expected P & L of $50 million and a VaR of $100 million.
The bank seeks to diversify its revenue, and is considering the opportunity to acquire a credit card business
with an expected P & L of $50 million and a VaR of $150 million. What will be the overall RAROC if the
bank acquires the new business?
- A. 72%.
- B. 50%.
- C. 33.3%.
- D. 58%.
Answer: D
NEW QUESTION 120
Which of the following statements explain how securitization makes the retail assets highly liquid and the
balance sheet easier to manage?
I. By securitizing assets any lack of capital can be accommodated by selling the securitized bonds.
II. Any need to diversify credit risk can be achieved by selling bank's own securitized bonds and buying other
bonds that increase diversification.
III. Securitization could be used to promote hedging by using limited market instruments.
- A. I, II, III
- B. II
- C. I, II
- D. II, III
Answer: C
NEW QUESTION 121
Which one of the following four statements correctly identifies disadvantages of using the economic capital?
- A. Economic capital may do not take into consideration the regulatory requirements.
- B. The economic capital models used by banks may be subject to significant model risk.
- C. Since banks are putting their money at risk they have an incentive to increase economic capital.
- D. Economic capital estimates the level of expected losses.
Answer: B
NEW QUESTION 122
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. 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. - C. Some commodities can be both in backwardation and a have a strong seasonal element.
- D. 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.
Answer: A
NEW QUESTION 123
US-based BetaBank have accumulated Japanese yen, Japanese government bonds, options on Japanese yen,
and positions in commodities that have a positive correlation with yen. Which one of the four following
non-statistical risk measures could be used to evaluate the BetaBank's exposure to the Japanese economy?
- A. Position concentrations
- B. Position volatility
- C. Position turnover
- D. Position sensitivities
Answer: A
NEW QUESTION 124
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