[Full-Version] 2022 Updated GARP Study Guide 2016-FRR Dumps Questions
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NEW QUESTION 202
In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the
entire trading day. Which of the following factors would most likely affect foreign exchange option values?
I. Change in the value of the underlying
II. Change in the perception of future volatility
III. Change in interest rates
IV. Passage of time
- A. I, II
- B. I, II, III
- C. II, III
- D. I, II, III, IV
Answer: D
NEW QUESTION 203
Which one of the following four statements on factors affecting the value of options is correct?
- A. As volatility rises, options increase in value.
- B. As time passes, options will increase in value.
- C. As interest rates rise and option's rho is positive, option prices will decrease.
- D. As the value of underlying security increases, the value of the put option increases.
Answer: A
NEW QUESTION 204
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 100%.
- B. The option positions hedge the forward position by 50%.
- C. The option positions hedge the forward position by 75%.
- D. The options positions hedge the forward position by 25%.
Answer: B
NEW QUESTION 205
What is the order in which creditors and shareholders get repaid in the event of a bank liquidation?
- A. Debt holders, depositors, shareholders.
- B. Depositors, shareholders, depositors.
- C. Depositors, debt holders, shareholders.
- D. Depositors, shareholders, debt holders.
Answer: C
NEW QUESTION 206
Gamma Bank has a significant number of retail customers and finds its balance sheet shape and structure
difficult to manage. Which one of the following characteristics of a bank with wide retail operations is
INCORRECT?
- A. Pricing of retail products often has more to do with marketing considerations rather than prevailing
market price. - B. Banks with a wide retail base are typically driven by contractual obligations and not simply relationship
considerations. - C. The way retail customers behave in relation to the retail banking products they hold often results in the
apparent contractual obligation of the parties providing a poor description of the actual nature of the
obligations. - D. Attracting and retaining customers often involves offering retail products whose features are different
from wholesale market products.
Answer: B
NEW QUESTION 207
Over a long period of time DeltaBank has amassed a large equity option position. Which of the following risks
should be considered in this transaction?
I. Counterparty risk on long OTC option positions
II. Counterparty risk on short OTC option positions
III. Counterparty risk on long exchange-traded option positions
IV. Counterparty risk on short exchange-traded option positions
- A. I, II
- B. II, III
- C. I
- D. II, III, IV
Answer: C
NEW QUESTION 208
Which one of the following four options does NOT represent a benefit of compensating balances to the bank?
- A. Compensation balances influence the expected loss rate of the bank given the default obligor and
improve capital structure by controlling obligor type and avoiding payment delays. - B. Since the compensating balances cannot be withdrawn at short notice, if at all, they are not considered
transaction accounts and are able to provide a stable funding to the bank, reducing its reliance on more
volatile external inter-bank based funding sources. - C. Since the compensating balances reduce the next amount lent to the borrower, the earned return on the
loan is increased, further widening the bank's interest rate margin and profitability. - D. Compensating balances allow the bank to net some of the exposure they may have in case of default, by
taking funds from these specific deposit account one the borrower defaults.
Answer: A
NEW QUESTION 209
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 210
A risk associate responsible for the operational risk function wants to evaluate the upward reporting
governance structure and to assess its critical features. Which one of the four attributes does not represent a
critical feature of the upward reporting governance structure?
- A. Security
- B. Independence
- C. Importance
- D. Relevance
Answer: A
NEW QUESTION 211
Which of the following factors are typically included in standard operational risk definitions?
I. Human errors
II. Process failure
III. Systems failure
IV. Unexpected events
- A. II and III
- B. I, II and III
- C. I and II
- D. I and IV
Answer: B
NEW QUESTION 212
ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use
to finance their own lending. Individually, each of the mortgage companies have an exposure at default (EAD)
of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk
department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were
modeled as independent risks, the actual probability would be underestimated by:
- A. 3%
- B. 4%
- C. 1%
- D. 2%
Answer: B
NEW QUESTION 213
Alpha Bank estimates its 1-month, 95% VaR is 30 million EUR. This means that in the next month, there is a
- A. 95% chance that AlphaBank can lose more than 30 million EUR.
- B. 95% chance that AlphaBank can lose at most 30 million EUR.
- C. 95% chance that AlphaBank will lose exactly 30 million EUR.
- D. 95% chance that AlphaBank will at least lose 30 million EUR.
Answer: B
NEW QUESTION 214
An options trader for a large institutional investor takes a long equity option position. Which of the following
risks need to be considered when taking this position?
I. All the risks of underlying equities
II. Perceived volatility changes
III. Future dividends yields
IV. Risk-free interest rates
- A. I, II
- B. II, III
- C. I, II, III, IV
- D. III, IV
Answer: C
NEW QUESTION 215
A risk manager is analyzing a call option on the GBP with a vega of 0.02. When the perceived future volatility
increases by 1%, the call option
- A. Increases in value by 2.
- B. Decreases in value by 2.
- C. Increases in value by 0.02.
- D. Decreases in value by 0.02.
Answer: C
NEW QUESTION 216
As DeltaBank explores the securitization business, it is most likely to embrace securitization to:
I. Bring transparency to the bank's balance sheet
II. Create a new profit center for the bank
III. Strategically release risk capital and regulatory capital for redeployment
IV. Generate cash for additional debt origination
- A. I, II, III
- B. II, IV
- C. I, III
- D. II, III, IV
Answer: D
NEW QUESTION 217
Which of the following statements about endogenous and external types of liquidity are accurate?
I. Endogenous liquidity is the liquidity inherent in the bank's assets themselves.
II. External liquidity is the liquidity provided by the bank's liquidity structure to fund its assets and maturing
liabilities.
III. External liquidity is the non-contractual and contingent capital supplied by investors to support the bank in
times of liquidity stress.
IV. Endogenous liquidity is the same as funding liquidity.
- A. I, II
- B. I, II, IV
- C. II, III
- D. I, III
Answer: D
NEW QUESTION 218
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