Prepare for your exam certification with our 2016-FRR Certified GARP [Q190-Q212]

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Prepare for your exam certification with our 2016-FRR Certified GARP

Free GARP 2016-FRR Exam 2023 Practice Materials Collection

The FRR Series Certification Exam is a rigorous assessment of the skills and knowledge required to effectively manage financial risks. 2016-FRR exam covers a wide range of topics including market risk, credit risk, operational risk, and liquidity risk. It also includes sections on regulatory compliance, ethics, and governance. 2016-FRR exam is open to individuals who have a minimum of two years of work experience in the field of financial risk management.

Q190. Foreign exchange rates are determined by various factors. Considering the drivers of exchange rates, which
one of the following changes would most likely strengthen the value of the USD against other foreign
currencies?

The expected US inflation rate increases

The global demand for US products decreases

The economic performance in the US weakens

The US current account surplus increases

Q191. To hedge a foreign exchange exposure on behalf of a client, a small regional bank seeks to enter into an
offsetting foreign exchange transaction. It cannot access the large and liquid interbank market open primarily
to larger banks. At which one of the following exchanges can the smaller bank trade the currency futures
contracts?
I. The Tokyo Futures Exchange
II. The Euronext-Liffe Exchange
III. The Chicago Mercantile Exchange

III

II, III

I, II, III

Q192. According to Basel II what constitutes Tier 2 capital?

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.

Debt that is subordinate to equity.

Equity capital and debt together.

Core capital excluding undisclosed reserves and general reserves that the bank may make against its
expected loan losses.

Q193. An asset manager just bought a coupon paying bond with principal value $100,000 for $87,000 with a current
yield of 4.7%. He assumes that if the yields change to 5.7% the price of the bond would be $84,500. Based on
this assumption what is the modified duration of the bond?

2,507.

97.12.

2.97.

2.88.

Q194. AlphaBank’s management is evaluating how changes in its business environment could materially impact risk
categories. As a result, bank’s management decides to implement the structure, which facilitates the discussion
in an integrative context, spanning market, credit, and operational risk factors, and encourages transparency
and communication between risk disciplines. Which one of the following four approaches should the
management choose to achieve this strategic goal?

Regulatory risk management approach

Enterprise risk management approach

Scenario-based risk management approach

Taxonomy-based risk management approach

Q195. Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions
in banks?

Derivative

Bond

Cash

Basis

Q196. Which one of the following four regulatory drivers for operational risk management includes risk and control
requirements for financial statements in the United States?

Basel II Accord

Solvency II

The Markets in Financial Instruments Directive

The Sarbanes-Oxley Act

Q197. Which one of the following four statements about planning for the operational risk framework is
INCORRECT?

Planning for the operational risk framework involves setting clear goals, realistic milestones and
achievable deliverables that add value.

An operational risk framework is a complex and evolving challenge, and to keep its development under
control it is important to apply strong project management skills to the design and implementation of
each new element.

Planning for the operational risk framework suggests that short-term planning and focus on immediate
benefits is strongly preferred to the long-term planning approach.

Once the elements of an operational risk framework are up and running, they need to be monitored to
ensure they maintain their integrity and do not deteriorate over time.

Q198. Which one of the following four statements about the relationship between exchange rates and option values is
correct?

As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
decreases.

As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases.

As the dollar depreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases.

As the dollar appreciates relative to the pound, the right to sell dollars at a fixed pound exchange rate
increases.

Q199. Why do regulatory standards impose formulaic capital calculations for all of the banks activities?
I. If the banks use different models it is difficult for a regulator to compare results across banks.
II. By imposing standardized calculations regulators can make sure that banks are not missing key risks in
their calculations.
III. By imposing standardized calculations regulators can make sure that banks do not use capital calculations
to game the banking regulation system.

I,II

II, III

I,II, III

Q200. Gamma Bank is operating in a highly volatile interest rate environment and wants to stabilize its net income
by shifting the sources of its earnings from interest rate sensitive sources to less interest rate sensitive sources.
All of the following strategies can help achieve this objective EXCEPT:

Charge bank fees for underwriting loans

Provide trust, asset management, and trading services to customers

Extend different types of credit

Originate more floating interest rate loans

Q201. A risk manager is considering how to best quantify option price dynamics using mathematical option pricing
models. Which of the following variables would most likely serve as an input in these models?
I. Implicit parameter estimate based on observed market prices
II. Estimates of sensitivity of option prices to parameter changes
III. Theoretical option determination based on assumptions

I, III

II, III

I, II, III

Q202. Which one of the following four statements about preferred shares is INCORRECT?

Preferred shares refer to a class of securities that is a cross between equity and debt.

Preferred shares represent residual of a corporation after its other liabilities have been paid.

Preferred shares are subordinated to debt.

Preferred shares can be perpetual or have maturities far exceeding debt maturities.

Q203. Which one of the following four exotic option types has another option as its underlying asset, and as a result
of its construction is generally believed to be very difficult to model?

Spread options

Chooser options

Binary options

Compound options

Q204. James Johnson manages a bond portfolio with all investment grade bonds. Adding which of the following
bonds would minimize the credit risk of his portfolio?

Q205. 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

I, II

I, III

II, IV

I, II, III, IV

Q206. 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?

Probability of default and loss at default may decrease simultaneously, while duration rises causing the
loan value to decrease.

Probability of default and loss at default may decrease simultaneously, while duration falls causing the
loan value to decrease.

Probability of default and loss at default may increase simultaneously, while duration rises causing the
loan value to decrease.

Probability of default and loss at default may increase simultaneously, while duration falls causing the
loan value to decrease.

Q207. Asset and liability management is typically concerned with all of the following activities:
I. Maintaining the desired liquidity structure of the bank.
II. Managing the factors affecting the structure and composition of a bank’s balance sheet.
III. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer
price.
IV. Focusing on the circumstances impacting the stability of income the bank generates over time.

II, III

III, IV

I, II, IV

Q208. To estimate the price of gold forwards, an investment analyst focuses on the cost of holding physical gold
(bullion) and the cost of shorting the same. Given that physical gold spot price is $1,000, the annual risk-free
rate is 5%, and the gold lease rate equals 2% annually, the analyst’s best estimate of the gold forward price to
equal

$950

$1030

$1070

$1100

Q209. In the United States, during the second quarter of 2009, transactions in foreign exchange derivative contracts
comprised approximately what proportion of all types of derivative transactions between financial institutions?

25%

43%

Q210. Banks duration match their assets and liabilities to manage their interest risk in their banking book. A bank has
$100 million in interest rate sensitive assets and $100 million in interest rate sensitive liabilities. Currently the
bank’s assets have a duration of 5 and its liabilities have a duration of 2. The asset-liability management
committee of the bank is in the process of duration-matching. Which of the following actions would best
match the durations?

Increase the duration of liabilities by 2 and increase the duration of assets by 1.

Increase the duration of liabilities by 2 and decrease the duration of assets by 1.

Decrease the duration of liabilities by 1 and increase the duration of assets by 1.

Decrease the duration of liabilities by 1 and decrease the duration of assets by 1.

Q211. 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

I, II

I, III

II, III

I, II, III

Q212. 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

I and II

III

I and IV

III and IV

The Global Association of Risk Professionals (GARP) is a renowned organization that aims to boast the level of sustainability and efficiency in the financial markets. GARP offers various certifications, examinations, and educational programs to help professionals pursue a career in risk management. One of the most popular and rigorous exams conducted by GARP is the Financial Risk and Regulation (FRR) Series.

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