GARP 2016-FRR Financial Risk and Regulation (FRR) Series Online Training
GARP 2016-FRR Online Training
The questions for 2016-FRR were last updated at Apr 23,2025.
- Exam Code: 2016-FRR
- Exam Name: Financial Risk and Regulation (FRR) Series
- Certification Provider: GARP
- Latest update: Apr 23,2025
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 . Long position worth $2 million with duration of 10.
- B . Long position worth $20 million with duration of 1.
- C . Short position worth $2 million with duration of 10.
- D . Short position worth $20 million with duration of 1.
Which of the following statements about the option gamma is correct?
I. Second derivative of the option value with respect to the volatility.
II. Percentage change in option value per percentage change in the price of the underlying instrument.
III. Second derivative of the value function with respect to the price of the underlying instrument.
IV. Rate of change of the option delta with respect to changes in the underlying price.
- A . I only
- B . II and III
- C . III and IV
- D . II, III, and IV
Which of the following statements depicts a difference between funding liquidity risks and trading liquidity risks?
- A . Funding liquidity risks are associated with how fast prices move in the market while trading liquidity risks originate out of bank trades.
- B . 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.
- C . Funding liquidity risks are short term risks while trading liquidity risks are longer term risks.
- D . Funding liquidity risks are associated only with the bank assets while trading liquidity risks are
associated with both assets and liabilities of the bank.
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 . 33.3%.
- B . 50%.
- C . 58%.
- D . 72%.
What are some of the drawbacks of correlation estimates? Which of the following statements identifies major problems with correlation calculations?
I. Correlation estimates are not able to capture increases in factor co-movements in extreme market scenarios.
II. Correlation estimates tend to be unstable.
III. Historical correlations may not forecast future correlations correctly.
IV. Correlation estimates assume normally distributed returns.
- A . I and II
- B . I and IV
- C . I, II and III
- D . II, III, and IV
A risk associate evaluating his current portfolio of assets and liabilities wants to determine how sensitive this portfolio is to changes in interest rates.
Which one of the following four metrics is typically used for this purpose?
- A . Modified duration
- B . Duration of default
- C . Effective duration
- D . Macaulay duration
The data available to estimate the statistical distribution of bank losses is difficult to assemble for which of the following reasons?
I. The needed data is vast in quantity.
II. The data requires bringing together significantly different measures of risk.
III. Some risks are difficult to quantify and hence the data might involve subjective elements.
- A . I, II
- B . I, III
- C . II, III
- D . I, II, III
Which of the following statements about parametric and nonparametric methods for calculating Value-at-risk is correct?
- A . Parametric methods generally assume returns are normally distributed, and non-parametric methods make no assumptions about return distributions.
- B . Parametric methods make no assumptions about return distributions, and non-parametric methods assume returns are normally distributed.
- C . Both parametric and nonparametric methods assume returns are normally distributed.
- D . Both parametric and nonparametric methods make no assumptions about return distributions.
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?
- A . Increase the duration of liabilities by 2 and increase the duration of assets by 1.
- B . Increase the duration of liabilities by 2 and decrease the duration of assets by 1.
- C . Decrease the duration of liabilities by 1 and increase the duration of assets by 1.
- D . Decrease the duration of liabilities by 1 and decrease the duration of assets by 1.
Which one of the following is a reason for a bank to keep a commercial loan in its portfolio until maturity?
I. Commercial loans usually have attractive risk-return profile.
II. Commercial loans are difficult to sell due to non standard features.
III. Commercial loans could be used to maintain good relations with important customers.
IV. The credit risk in commercial loans is low.
- A . I, II and III
- B . III and IV
- C . II and IV
- D . IV only
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