Free Nov-2023 UPDATED GARP 2016-FRR Exam Questions & Answer
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GARP 2016-FRR (Financial Risk and Regulation (FRR) Series) Exam is a certification that’s designed to validate your skills in managing financial risk and complying with global regulatory frameworks. 2016-FRR exam is offered by the Global Association of Risk Professionals (GARP), a non-profit organization that promotes risk assessment and management expertise worldwide. Financial Risk and Regulation (FRR) Series certification program is designed for professionals in the financial services industry who want to expand their knowledge to better understand the complex financial risk and regulatory environment.
GARP 2016-FRR exam is intended for professionals who work in financial institutions, such as banks, investment firms, and insurance companies. 2016-FRR exam is designed to test the knowledge and skills necessary to manage financial risk, comply with regulatory requirements, and govern financial institutions effectively. 2016-FRR exam covers a wide range of topics, including market risk, credit risk, operational risk, and liquidity risk.
NEW QUESTION # 117
By lowering the spread on lower credit quality borrowers, the bank will typically achieve all of the following
outcomes EXCEPT:
- A. Lower probability of default
- B. Aggressively courting of new business
- C. Higher losses in case of default
- D. Rapid growth
Answer: A
NEW QUESTION # 118
Short-selling is typically associated with the following risks:
I. Potential for extreme losses
II. Risk associated with the availability of shares to borrow
III. Market behavior risk
IV. Liquidity risk
- A. I, III
- B. I, II
- C. I, II, III, IV
- D. II, IV
Answer: C
NEW QUESTION # 119
Suppose Delta Bank enters into a number of long-term commercial and retail loans at fixed rate prevailing at
the time the loans are originated. If the interest rates rise:
- A. The bank will have to pay lower interest rates to its depositors and would have to pay higher rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans. - B. The bank will have to pay lower interest rates to its depositors and would have to pay lower rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans. - C. The bank will have to pay higher interest rates to its depositors and would have to pay higher rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans. - D. The bank will have to pay higher interest rates to its depositors and would have to pay lower rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans.
Answer: C
NEW QUESTION # 120
What is the order in which creditors and shareholders get repaid in the event of a bank liquidation?
- A. Depositors, shareholders, debt holders.
- B. Debt holders, depositors, shareholders.
- C. Depositors, debt holders, shareholders.
- D. Depositors, shareholders, depositors.
Answer: C
NEW QUESTION # 121
A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian
dollars and sell Brazilian reals. Alpha bank does not hold Brazilian reals so it asks for a quote to buy Brazilian
reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer, sells the
reals, and receives AUD 1,010,000. To perform foreign exchange matched position trading, the banks should
- A. Immediately buy the real above the market rate of 105 and pay AUD 1,050,050.
- B. Immediately sell the real above the market rate of 105 and receive AUD 1,050,050.
- C. Immediately buy the real at the market rate of 100 and pay AUD 1,000,000.
- D. Immediately sell the real at the market rate of 100 and receive AUD 1,000,000.
Answer: C
NEW QUESTION # 122
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. II and III
- C. I, II and III
- D. I and III
Answer: A
NEW QUESTION # 123
James Arthur is a customer of a bank who has taken a floating rate loan from the bank. He is concerned that
the rates may rise in the future increasing his payment amount. Which of the following instruments should he
buy to hedge against the rise in interest rates?
- A. Interest rate floor
- B. Interest rate cap
- C. Interest rate swap that receives fixed and pays floating
- D. Index amortizing swap
Answer: B
NEW QUESTION # 124
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 # 125
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 exposure at default (EAD) be?
- A. $105,000
- B. $25,000
- C. $50,000
- D. $75,000
Answer: C
NEW QUESTION # 126
Which one of the following four statements best describes challenges of delta-normal method of mapping
options positions?
Delta-normal method understates
- A. Risks of long and short positions for both calls and puts.
- B. Risks of short option positions and overstates risks of long option positions for both calls and puts.
- C. Risks of long option positions for calls and overstates risks of short option positions for puts.
- D. Risks of long option positions for puts and overstates risks of short option positions for calls.
Answer: B
NEW QUESTION # 127
All of the four following exotic options are path-independent options, EXCEPT:
- A. Chooser options
- B. Asian options
- C. Power options
- D. Basket options
Answer: B
NEW QUESTION # 128
Gamma Bank has a significant number of retail customers and finds its balance sheet shape and structure
difficult to manage. Which one of the following characteristics of a bank with wide retail operations is
INCORRECT?
- A. The way retail customers behave in relation to the retail banking products they hold often results in the
apparent contractual obligation of the parties providing a poor description of the actual nature of the
obligations. - B. Banks with a wide retail base are typically driven by contractual obligations and not simply relationship
considerations. - C. Pricing of retail products often has more to do with marketing considerations rather than prevailing
market price. - D. Attracting and retaining customers often involves offering retail products whose features are different
from wholesale market products.
Answer: B
NEW QUESTION # 129
Mega Bank holds a $250 million mortgage loan portfolio, which reprices every 5 years at LIBOR + 10%. The
bank also has $150 million in deposits that reprices every month at LIBOR + 3%. What is the amount of Mega
Bank's rate sensitive liabilities?
- A. $250 million
- B. $100 million
- C. $200 million
- D. $150 million
Answer: D
NEW QUESTION # 130
Which of the following statements depicts a difference between funding liquidity risks and trading liquidity
risks?
- A. Funding liquidity risks are associated only with the bank assets while trading liquidity risks are
associated with both assets and liabilities of the bank. - B. Funding liquidity risks are associated with how fast prices move in the market while trading liquidity
risks originate out of bank trades. - C. 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. - D. Funding liquidity risks are short term risks while trading liquidity risks are longer term risks.
Answer: C
NEW QUESTION # 131
Normally, commercial banking can be viewed as a fixed income carry trade since
- A. Short-term fixed-rate deposits are used to fund short-term floating rate loans.
- B. Short-term floating-rate deposits are used to fund short-term floating rate loans.
- C. Short-term fixed rate deposits are used to fund long-term floating rate loans.
- D. Short-term floating-rate deposits are used to fund long-term fixed rate loans.
Answer: D
NEW QUESTION # 132
From the bank's point of view, repricing the retail debt portfolio will introduce risks of fluctuations in:
I. Duration
II. Loss given default
III. Interest rates
IV. Bank spreads
- A. III, IV
- B. II
- C. I, II
- D. I
Answer: A
NEW QUESTION # 133
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 interest rates on both interbank loans and T-bills.
- B. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.
- C. The decrease in the TED spread indicates an increase in credit risk on interbank loans.
- D. Increase in credit risk on T-bills.
Answer: C
NEW QUESTION # 134
Mega Bank has $100 million in deposits on which it pays 3% interest, and $20 million in equity on which it
pays no interest. The loan portfolio of $120 million earns an average rate of 10%. If the rates remain the same
and Mega Bank is able to earn the same net interest income in perpetuity at a 5% discount rate, what will the
present value of this holding be?
- A. $150 million
- B. $180 million
- C. $100 million
- D. $200 million
Answer: B
NEW QUESTION # 135
Which one of the following four statements about the "market-maker" trading strategy is INCORRECT?
- A. This strategy is independent of market liquidity and number of other market makers.
- B. This risk in this strategy is that traders have to take positions that may quickly incur a loss.
- C. A market maker that attracts buy and sell orders can make a profit from the spread quoted between the
buy and sell price. - D. A market maker can benefit from the market information she gets from the trades she is asked to
execute.
Answer: A
NEW QUESTION # 136
Which statements correctly describe the features of using subscription databases for operational loss data
analysis?
Subscription databases
I. Provide central data repositories and benchmarking services to their members.
II. Can provide insight into whether the losses in a firm reflect the usual losses in their industry.
III. Assist with mapping the events to the appropriate business lines, risk categories and causes.
IV. Reflect only events that are interesting to the press and are reported in the press.
- A. I and II
- B. I, II and III
- C. II, III, and IV
- D. II and III
Answer: D
NEW QUESTION # 137
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). 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? What is the expected loss of this loan?
- A. $550
- B. $1,050
- C. $300
- D. $750
Answer: B
NEW QUESTION # 138
The risk management department of VegaBank wants to set guidelines on commodity carry trades. Which of
the following strategies should she pursue to achieve a profitable commodity carry?
I. Buy short-term commodity futures and sell longer-dated position when the curve is in contango.
II. Buy short-term commodity futures and sell longer-dated position when the curve is in backwardation.
III. Buy long-term commodity futures and sell shorter-dated positions when the curve is in contango.
IV. Buy long-term commodity futures and sell shorter-dated positions when the curve is in backwardation.
- A. I, III
- B. I, IV
- C. I, II
- D. II, IV
Answer: B
NEW QUESTION # 139
Which one of the following four statements about economic capital of a bank is correct?
- A. Economic capital is determined by rules imposed by an external authority.
- B. Economic capital is the present value of the earnings generated by the bank in the future.
- C. Economic capital reflects the possible losses that could occur based on the bank's own estimates of the
risks it is taking. - D. Economic capital measures how the economy is doing compared to the bank.
Answer: C
NEW QUESTION # 140
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