GARP 2016-FRR Financial Risk and Regulation (FRR) Series Online Training

Question #31

Interest rate swaps are:

A . Exchange traded derivative contracts that allow banks to take positions in future interest rates.
B . OTC derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without relying on long-term funding.
C . Exchange traded derivative contracts that allow banks and customers to obtain the risk/reward profile of long-term interest rates without having to use long-term funding.
D . OTC derivative contracts that allow banks to take positions in series of future exchange rates.

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Question #32

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

A . As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate decreases.
B . As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate increases.
C . As the dollar depreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate increases.
D . As the dollar appreciates relative to the pound, the right to sell dollars at a fixed pound exchange
rate increases.

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Question #33

Which of the following are among the main uses of risk reports?

I. Identification of exceptional situations that require managerial attention.

II. Display the relative risk among different trades.

III. Specify how RAROC will be maximized within the bank.

IV. Estimate the overall risk levels of the bank.

A . I, II and IV
B . II and III
C . II and IV
D . II, III, and IV

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Question #34

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?

A . Regulatory risk management approach
B . Enterprise risk management approach
C . Scenario-based risk management approach
D . Taxonomy-based risk management approach

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Question #35

Which of the following assets on the bank’s balance sheet has greatest endogenous liquidity risk?

A . A 2-year U.S treasury bond
B . A 1-week corporate loan with a AAA rated company
C . A 10-year U.S treasury bond
D . A 3-year subprime mortgage

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Question #36

The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential

failure of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed, the principal and the contractual interest payments, would be called ___.

A . Credit risk; market risk
B . Market risk; credit risk
C . Credit risk; performance risk
D . Performance risk; credit risk

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Question #37

In hedging transactions, derivatives typically have the following advantages over cash instruments:

I. Lower credit risk

II. Lower funding requirements

III. Lower dealing costs

IV. Lower capital charges

A . I, II
B . I, III
C . II, IV
D . I, II, III, IV

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Question #38

Which one of the four following statements about Basis point values is correct?

Basis point value:

A . Is a widely used statistical tool used to measure market risk.
B . Refers to the change in the value of a fixed income position for a very small change yields.
C . Is a risk sensitivity measure used to measure the point spread risk in the banking book.
D . Provides a quick estimate of the sensitivity of the bank’s banking book, to increasing volatility in
interest rates.

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Question #39

A trader attempts to hold long positions when markets are rising and hold short positions when markets are falling.

Which one of the following four trading styles is she likely to use?

A . Technical trading
B . Contrarian trading
C . Black box trading
D . Market timing trading

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Question #40

Which one of the following four statements represents a possible disadvantage of using total return swap to manage equity portfolio risks?

A . Similar to the formal portfolio rebalancing strategy, the total return receiver needs to modify the size of the trading position.
B . The total return receiver needs to incur the transaction costs of establishing an equity position.
C . Similar to an equity forward position, the total return receiver does not get paid the dividend.
D . The total return receiver does not have any voting rights.

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