Financial Risk and Regulation Certification 2016-FRR Sample Questions Reliable
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NEW QUESTION # 84
Gamma Bank estimates its monthly portfolio volatility at 5%.The portfolio's annual volatility is closest to
which of the following?
- A. 30%
- B. 8%
- C. 35%
- D. 17%
Answer: D
NEW QUESTION # 85
From a risk point of view, which of the following factors will generally lead to the fluctuation of equity values
with industry P/E levels and a company's individual earnings?
I. Sales
II. Cost management
III. Commercial success of the company
IV. Market sentiment
- A. I, II, III
- B. II, IV
- C. I, II
- D. III, IV
Answer: A
NEW QUESTION # 86
How could a bank's hedging activities with futures contracts expose it to liquidity risk?
- A. The futures hedge may not work due to the widening of basis which could result in a loss for the bank.
- B. The bank could get exposed to liquidity risk since futures trade on an exchange.
- C. Prices may move such that a loss results on the hedge.
- D. Since futures require margins which are settled every day, the bank could find itself scrambling for
funds.
Answer: D
NEW QUESTION # 87
Which one of the following four formulas correctly identifies the expected loss for all credit instruments?
- A. Expected Loss = Probability of Default x Loss Given Default + Exposure at Default
- B. Expected Loss = Probability of Default x Loss Given Default - Exposure at Default
- C. Expected Loss = Probability of Default x Loss Given Default x Exposure at Default
- D. Expected Loss = Probability of Default x Loss Given Default / Exposure at Default
Answer: C
NEW QUESTION # 88
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 gamma-hedging strategy.
- B. The theta-hedging strategy.
- C. The vega-hedging strategy.
- D. The delta-hedging strategy.
Answer: D
NEW QUESTION # 89
Which one of the following four statements regarding bank's exposure to credit and default risk is
INCORRECT?
- A. In debt management, the value of any loan exposure will change typically in a fashion similar the same
way that an equity investment can. - B. Default risk cannot be hedged away fully, and it will always exist for the holder of the credit or for the
person insuring against the credit or default event. - C. In debt management, the goal is to minimize the effect of any defaults.
- D. The more the bank diversifies its credit portfolio, the better spread its credit risks become.
Answer: A
NEW QUESTION # 90
An asset and liability manager for a large financial institution has to recognize that retail products ___ include
embedded options, which are often not rationally exercised, while wholesale products ___ carry penalties for
repayment or include rights to terminate wholesale contracts on very different terms than are common in retail
products.
- A. Hardly ever; rarely
- B. Hardly ever; typically
- C. Frequently; typically
- D. Frequently; rarely
Answer: C
NEW QUESTION # 91
To protect the oranges harvest price level, a farmer needs to take a hedge position. Provided that he produces
the amount he hedged, which one of the following four strategies will allow the farmer to accomplish his goal?
- A. Entering into a customized forward contract with the bank
- B. Negotiating a credit line facility
- C. Going long on oranges futures contacts
- D. Going short on oranges futures contracts
Answer: D
NEW QUESTION # 92
Which one of the following four statements represents a possible disadvantage of using total return swap to
manage equity portfolio risks?
- A. The total return receiver needs to incur the transaction costs of establishing an equity position.
- B. Similar to the formal portfolio rebalancing strategy, the total return receiver needs to modify the size of
the trading position. - C. The total return receiver does not have any voting rights.
- D. Similar to an equity forward position, the total return receiver does not get paid the dividend.
Answer: C
NEW QUESTION # 93
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
- A. I, II, III
- B. I, III
- C. II, III
- D. II
Answer: A
NEW QUESTION # 94
Which one of the following statements regarding collateralized mortgage obligations (CMO) is incorrect?
- A. CMOs have senior tranches which are considered short-term, low-risk instruments by banks
- B. CMOs are generally less risky investment than CDOs.
- C. CMOs are asset-backed securities that have pools of collateralized debt obligations (CDOs) as
underlying collateral. - D. CMOs are pools of mortgages that are divided according to the timing of cash flows.
Answer: C
NEW QUESTION # 95
Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading
strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should
Unico take to limit its risk exposure?
- A. A covering strategy that manages positions in the product by executing covering deals or hedging deal at
the discretion of the trading des. - B. A passive hedging strategy that allows the traders to price transactions with customers and other banks,
at the relevant bid price on the market. - C. A matched book strategy that allows the trading desk to match all customer positions immediately with
an equal and opposite position by trading internally or with another bank. - D. A market-maker strategy that allows the traders to quote a buy and sell price to customers and other
banks and to trade at the relevant price on the sell side of the market.
Answer: C
NEW QUESTION # 96
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. Calendar spreads basis
- B. Product basis
- C. Location basis
- D. Quality basis
Answer: A
NEW QUESTION # 97
Securitization is the process by which banks
I. Issue bonds where the payment of interest and repayment of principal on the bonds depends on the cash flow
generated by a pool of bank assets.
II. Issue bonds where the bank has transferred its legal right to payment of interest and repayment of principal
to bondholders.
III. Sell illiquid assets.
- A. I, II, III
- B. I
- C. I, III
- D. I, II
Answer: A
NEW QUESTION # 98
John owns a bond portfolio worth $2 million with duration of 10. What positions must he take to hedge this
portfolio against a small parallel shifts in the term structure.
- A. Short position worth $20 million with duration of 1.
- B. Long position worth $20 million with duration of 1.
- C. Short position worth $2 million with duration of 10.
- D. Long position worth $2 million with duration of 10.
Answer: C
NEW QUESTION # 99
A bank considers issuing new capital to increase its Tier 1 capital levels. Which of the following financial
instruments would most likely to be considered?
- A. Short-term callable debt
- B. Convertible preferred shares
- C. Short-term debt convertible to non-cumulative preferred shares
- D. Long-term and callable debt convertible to equity
Answer: B
NEW QUESTION # 100
An asset-sensitive bank will have a ___ cumulative gap and will benefit from ___ interest rates.
- A. Positive; rising
- B. Negative; dropping
- C. Negative; rising
- D. Positive; dropping
Answer: A
NEW QUESTION # 101
According to the principles of the Basel II Accord, the implementation and relative weights of the elements of
the operational risk framework depend on:
I. The culture of the financial institution
II. Regulatory drivers
III. Business drivers
IV. The bank's reporting currency
- A. I, II, III
- B. I, IV
- C. II, III
- D. II, IV
Answer: A
NEW QUESTION # 102
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Ace GARP 2016-FRR Certification with Actual Questions Jan 03, 2024 Updated: https://www.prepawayete.com/GARP/2016-FRR-practice-exam-dumps.html
Financial Risk and Regulation Certified Official Practice Test 2016-FRR: https://drive.google.com/open?id=1JVbdqmznU_-pHEFYvLVfSQNEBWKp2dDZ