GARP 2016-FRR Exam Info and Free Practice Test | TestPassKing
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The FRR Series is divided into two levels - Part I and Part II. Each level consists of a comprehensive exam that covers various topics related to financial risk management and regulation. 2016-FRR exams are computer-based and are administered at Pearson VUE test centers worldwide. 2016-FRR exams are designed to test the knowledge and skills of risk professionals in areas such as quantitative analysis, financial markets and products, risk management practices, and regulatory compliance.
NEW QUESTION # 103
On January 1, 2010 the TED (treasury-euro dollar) spread was 0.9%, and on January 31, 2010 the TED spread is 0.4%. As a risk manager, how would you interpret this change?
- A. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.
- B. Increase in credit risk on T-bills.
- C. Increase in interest rates on both interbank loans and T-bills.
- D. The decrease in the TED spread indicates an increase in credit risk on interbank loans.
Answer: A
Explanation:
The TED spread is the difference between the interest rates on interbank loans and short-term U.S.
government debt (T-bills). A decrease in the TED spread suggests that the perceived credit risk in the banking sector has decreased. This is because the lower spread indicates that banks are more confident in lending to each other, reflecting lower default risk on interbank loans. This typically happens in response to improved economic conditions or increased confidence in the banking system's stability.
NEW QUESTION # 104
Mega Bank holds a $250 million mortgage loan portfolio, which reprices every 5 years at LIBOR + 10%. The bank also has $150 million in deposits that reprices every month at LIBOR + 3%. What is the amount of Mega Bank's rate sensitive liabilities?
- A. $200 million
- B. $150 million
- C. $100 million
- D. $250 million
Answer: B
Explanation:
The amount of Mega Bank's rate-sensitive liabilities includes the $150 million in deposits that reprice every month at LIBOR + 3%. These deposits are considered rate-sensitive liabilities because their interest rates are adjusted monthly based on LIBOR.
NEW QUESTION # 105
Gamma Bank is operating in a highly volatile interest rate environment and wants to stabilize its net income
by shifting the sources of its earnings from interest rate sensitive sources to less interest rate sensitive sources.
All of the following strategies can help achieve this objective EXCEPT:
- A. Provide trust, asset management, and trading services to customers
- B. Originate more floating interest rate loans
- C. Extend different types of credit
- D. Charge bank fees for underwriting loans
Answer: B
NEW QUESTION # 106
The pricing of credit default swaps is a function of all of the following EXCEPT:
- A. Probability of default
- B. Market spreads
- C. Duration
- D. Loss given default
Answer: C
NEW QUESTION # 107
Which of the following are conclusions that could be drawn from the shape of the statistical distribution of losses that a bank might incur over a future time period?
I. In most years a bank would look more profitable than it will be on average.
II. Most of the time a sufficiently well capitalized bank will appear over-capitalized.
III. Bad years do not come along very often, but when they do they lead to enormous losses.
- A. I, III
- B. I, II
- C. I, II, III
- D. II, III
Answer: C
Explanation:
From the statistical distribution of bank losses over a future period, several conclusions can be drawn:
* I. In most years a bank would look more profitable than it will be on average: This indicates that most years will show better-than-average profitability because the distribution of losses includes infrequent but severe loss events.
* II. Most of the time a sufficiently well-capitalized bank will appear over-capitalized: Because banks prepare for rare but significant losses, in normal years, their capital reserves may seem excessive.
* III. Bad years do not come along very often, but when they do they lead to enormous losses: This reflects the heavy-tailed nature of the loss distribution, where extreme losses are rare but severe.
All three statements correctly reflect the characteristics of the loss distribution for banks.References: How Finance Works, sections covering statistical analysis of losses and capital adequacy.
NEW QUESTION # 108
Which of the following about the ratios between various Tiers of capital is not a requirement of the Basel Committee?
- A. Innovative instruments in Tier 1 are limited to a maximum of 15% of Tier 1 capital.
- B. Tier 2 capital cannot exceed 50% of the bank's total regulatory capital.
- C. Upper Tier 2 capital may only equal 30% of core capital.
- D. Lower Tier 2 capital may only equal 50% of core capital.
Answer: C
Explanation:
Basel Committee regulations stipulate certain limitations on the ratios between different tiers of capital.
Specifically, Tier 2 capital cannot exceed 100% of Tier 1 capital, innovative instruments in Tier 1 are limited to a maximum of 15% of Tier 1 capital, and Lower Tier 2 capital can only equal up to 50% of core capital.
However, the requirement stating that Upper Tier 2 capital may only equal 30% of core capital is not a requirement under the Basel Committee regulations, making option D the correct answer as it is the statement that is not a requirement.
NEW QUESTION # 109
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. Banks with a wide retail base are typically driven by contractual obligations and not simply relationship
considerations. - B. Attracting and retaining customers often involves offering retail products whose features are different
from wholesale market products. - C. Pricing of retail products often has more to do with marketing considerations rather than prevailing
market price. - D. 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.
Answer: A
NEW QUESTION # 110
On January 1, 2010 the TED (treasury-euro dollar) spread was 0.4%, and on January 31, 2010 the TED spread
is 0.9%. As a risk manager, how would you interpret this change?
- A. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.
- B. Increase in credit risk on T-bills.
- C. Increase in interest rates on both interbank loans and T-bills.
- D. The decrease in the TED spread indicates an increase in credit risk on interbank loans.
Answer: D
NEW QUESTION # 111
Alpha Bank, a small bank,has a long position with larger BetaBank and has an identical short position with
another larger bank GammaBank. Each large bank requires a 20% initial collateral to support the trade. As
prices fluctuate in either direction, one large bank will require additional collateral from the small bank, while
the risk of loss to the other large bank will increase. By running the trades through a clearinghouse, the small
bank can achieve all of the following objectives EXCEPT:
- A. Protecting against the risk of the failure of one of the large banks
- B. Eliminating the collateral requirement
- C. Mitigating option hedging risks and altering margin requirement
- D. Protecting itself against increases in future collateral demands
Answer: C
NEW QUESTION # 112
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. Decrease the duration of liabilities by 1 and decrease the duration of assets by 1.
- B. Increase the duration of liabilities by 2 and decrease the duration of assets by 1.
- C. Increase the duration of liabilities by 2 and increase the duration of assets by 1.
- D. Decrease the duration of liabilities by 1 and increase the duration of assets by 1.
Answer: B
NEW QUESTION # 113
To achieve leverage in long positions, a bank can use the following strategy:
I. Securities may be purchased with borrowed funds using a bank loan from the broker.
II. Securities may be borrowed on margin by taking a loan from a broker.
III. Securities may be purchased and used in a repo transaction to generate cash for further security purchases.
IV. The bank may enter into a derivative transaction, such as a total return swap, that requires little to no
collateral but mimics the performance of a long or short position in the underlying instrument.
- A. II, IV
- B. I, III
- C. I, II
- D. I, II, III, IV
Answer: D
NEW QUESTION # 114
The skewness of ABC company's stock returns equal -1.5. What is the correct interpretation of this?
- A. It indicates higher relative probability of negative returns compared to estimates derived from a normal
distribution. - B. It indicates lower probability of extreme negative events compared to the normal distribution.
- C. It indicates that the returns are indeed normally distributed.
- D. It indicates higher relative probability of extreme events than non-extreme events compared to estimates
from a normal distribution.
Answer: A
NEW QUESTION # 115
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. Black box trading
- B. Market timing trading
- C. Technical trading
- D. Contrarian trading
Answer: B
NEW QUESTION # 116
A bank owns a portfolio of bonds whose composition is shown below.
What is the modified duration of the portfolio?
- A. 2.30
- B. 0.5
- C. 1.30
- D. 8.5
Answer: C
NEW QUESTION # 117
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
increases. - B. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
decreases. - 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.
Answer: A
NEW QUESTION # 118
Operational risk team for a large international bank is implementing business continuity planning (BCP).
Which of the following BCP activities fall within the definition of operational risk and represent Basel II Accord's operational risk categories:
I. Damage to Physical Assets
II. Business Disruption and System Failures
III. Social Distancing Requirements
IV. Potential for Extreme Losses
- A. III and IV
- B. I and II
- C. III
- D. I and IV
Answer: B
Explanation:
According to Basel II Accord's operational risk categories, Business Continuity Planning (BCP) activities that fall within operational risk include:
* Damage to Physical Assets: This covers risks related to the physical destruction or damage to bank assets.
* Business Disruption and System Failures: This includes risks associated with operational disruptions and failures in systems that support business activities.
NEW QUESTION # 119
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. 30%
- B. 40%
- C. 50%
- D. 60%
Answer: C
NEW QUESTION # 120
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GARP 2016-FRR (Financial Risk and Regulation) certification exam is a globally recognized certification program offered by the Global Association of Risk Professionals (GARP). Financial Risk and Regulation (FRR) Series certification is designed for professionals who work in financial risk management and regulation, providing them with the knowledge and skills needed to succeed in their roles. The GARP FRR certification exam covers a wide range of topics, including risk management frameworks, regulatory requirements, and financial instruments.
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