[2023] Pass GARP 2016-FRR Exam Updated 345 Questions
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NEW QUESTION 34
According to Basel II what constitutes Tier 3 capital?
- A. Preference shares that confer on issuers the right to defer payment of a fixed dividend.
- B. Debt capital that can only be used to support market risk in the trading book of the bank.
- C. Subordinated debt issues that pay interest.
- D. Hybrid debt capital instruments that are similar to equity.
Answer: B
NEW QUESTION 35
James Johnson bought a coupon bond yielding 4.7% for $1,000. Assuming that the price drops to $976 when
yield increases to 4.71%, what is the PVBP of the bond.
- A. $870.
- B. $26.
- C. $976.
- D. $76.
Answer: B
NEW QUESTION 36
Which one of the following four options correctly identifies the core difference between bonds and loans?
- A. These instruments have different pricing drivers.
- B. These instruments receive a different legal treatment.
- C. These instruments are subject to different credit counterparty regulations.
- D. These instruments cannot be used to estimate credit capital under provisions of the Basel II Accord.
Answer: B
NEW QUESTION 37
Bank G has a 1-year VaR of USD 20 million at 99% confidence level while bank H has a 1-year VaR of USD
10 million at the same confidence level. Which bank is in a more risky position as measured by VaR?
- A. Since the confidence levels are the same we cannot make any conclusions.
- B. Both banks are equally risky since the measurements are with the same confidence level.
- C. Bank H is taking twice the risk of bank G as measured by VaR.
- D. Bank G is taking twice the risk of bank H as measured by VaR.
Answer: D
NEW QUESTION 38
An endowment asset manager with a focus on long/short equity strategies is evaluating the risks of an equity
portfolio. Which of the following risk types does the asset manager need to consider when evaluating her
diversified equity portfolio?
I. Company-specific projected earnings and earnings risk
II. Aggregate earnings expectations
III. Market liquidity
IV. Individual asset volatility
- A. I, IV
- B. I, II, IV
- C. II, III
- D. I
Answer: C
NEW QUESTION 39
Which of the following risk types are historically associated with credit derivatives?
I. Documentation risk
II. Definition of credit events
III. Occurrence of credit events
IV. Enterprise risk
- A. I, IV
- B. I, II, III
- C. II, III, IV
- D. I, II
Answer: B
NEW QUESTION 40
In the United States, stock investors must comply with the Regulation T of the Federal Reserve Bank and may
borrow up to ___ of the value of the securities from their brokers.
- A. 40%
- B. 50%
- C. 30%
- D. 60%
Answer: B
NEW QUESTION 41
Which one of the following four statements about equity indices is INCORRECT?
- A. Equity indices do not trade in cash form, rather, they are meant to track the overall performance of an
equity market. - B. Price-weighted equity indices give greater weight to shares trading at high prices.
- C. Equity indices are numerical calculations that reflect the performance of hypothetical equity portfolios.
- D. Capitalization-weighted equity indices are not generally considered better to track the performance of an
overall market.
Answer: D
NEW QUESTION 42
According to Basel II what constitutes Tier 2 capital?
- A. Core capital excluding undisclosed reserves and general reserves that the bank may make against its
expected loan losses. - B. Debt that is subordinate to equity.
- C. Equity capital and debt together.
- D. 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.
Answer: D
NEW QUESTION 43
In the United States, Which one of the following four options represents the largest component of securitized
debt?
- A. Education loans
- B. Real estate loans
- C. Lines of credit
- D. Credit card loans
Answer: B
NEW QUESTION 44
In the United States, foreign exchange derivative transactions typically occur between
- A. All banks with international branches, where the risks become widely distributed based on trading
exposures. - B. Regional banks with international operations, where the risks depend on the specific derivative
transactions. - C. A few large internationally active banks, where the risks become concentrated.
- D. Thrifts and large commercial banks, where the risks become isolated.
Answer: C
NEW QUESTION 45
Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration
measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield
curve?
- A. Since the portfolio is duration hedged Sam does not need to take additional positions.
- B. Take positions to make the convexity zero
- C. Take positions to reduce the duration
- D. Take positions to increase the duration
Answer: B
NEW QUESTION 46
A risk manager has a long forward position of USD 1 million but the option portfolio decreases JPY 0.50 for
every JPY 1 increase in his forward position. At first approximation, what is the overall result of the options
positions?
- A. The option positions hedge the forward position by 50%.
- B. The options positions hedge the forward position by 25%.
- C. The option positions hedge the forward position by 75%.
- D. The option positions hedge the forward position by 100%.
Answer: A
NEW QUESTION 47
James manages a loans portfolio. He has to evaluate a large number of loans to choose which of them he will
keep in the bank's books. Which one of the following four loans would he be most likely to sell to another
bank?
- A. Loan to a borrower who has been delinquent previously, but now is performing as agreed.
- B. Loan made to a highly risky borrower that is fully collateralized by the customer's deposits.
- C. Loan to a commercial customer with a good payment history and collateral.
- D. Loan to a major customer who is also a director and a large owner.
Answer: C
NEW QUESTION 48
Suppose that a regulator deems all corporate debt to have the same risk level. Which of the following behavior
of banks would be an example of regulatory arbitrage?
- A. Banks increase their exposure to corporate debt.
- B. Banks decrease their exposure to corporate debt.
- C. Banks shift their exposure to more risky corporate debt.
- D. Banks shift their exposure to less risky corporate debt.
Answer: C
NEW QUESTION 49
As an example of the balance sheet effect, if rates rise, Delta Bank can expect:
- A. Its fixed rate assets to increase in value, while that effect will be amplified by a reduction in the value of
its fixed rate liabilities. - B. Its fixed rate assets to drop in value, while that effect will be amplified by a reduction in the value of its
fixed rate liabilities. - C. Its fixed rate assets to drop in value, although that effect will be offset by a reduction in the value of its
fixed rate liabilities. - D. Its fixed rate assets to increase in value, although that effect will be offset by a reduction in the value of
its fixed rate liabilities.
Answer: C
NEW QUESTION 50
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 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 and sells the reals at
this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange
matched transaction. What is the financial impact of this transaction for Alpha bank?
- A. This transaction leaves the bank a profit of AUD 10,101.
- B. This transaction leaves the bank a loss of AUD 10,101.
- C. This transaction leaves the bank a loss of BRL 10,101.
- D. This transaction leaves the bank a profit of BRL 10,101.
Answer: A
NEW QUESTION 51
All of the following performance statistics typically benefit country's creditworthiness EXCEPT:
- A. Low unemployment
- B. Low degrees of savings
- C. High degrees of investment
- D. Low inflation
Answer: B
NEW QUESTION 52
By foreign exchange market convention, spot foreign exchange transactions are to be exchanged at the spot
date based on the following settlement rule:
- A. Three-day rule
- B. Two-day rule
- C. One-day rule
- D. Four-day rule
Answer: B
NEW QUESTION 53
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