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Free GARP 2016-FRR Practice Exam with Questions & Answers | Set: 12

Questions 111

A bank customer can use either a plain vanilla option or an option contract with volumetric flexibility to reduce the following risks:

I. Market Risk

II. Basis Risk

III. Operational Risk

Options:
A.

I

B.

II

C.

I, II

D.

II, III

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Questions 112

Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should Unico take to limit its risk exposure?

Options:
A.

A matched book strategy that allows the trading desk to match all customer positions immediately with an equal and opposite position by trading internally or with another bank.

B.

A covering strategy that manages positions in the product by executing covering deals or hedging deal at the discretion of the trading des.

C.

A passive hedging strategy that allows the traders to price transactions with customers and other banks, at the relevant bid price on the market.

D.

A market-maker strategy that allows the traders to quote a buy and sell price to customers and other banks and to trade at the relevant price on the sell side of the market.

Questions 113

Why do regulatory standards impose formulaic capital calculations for all of the banks activities?

I. If the banks use different models it is difficult for a regulator to compare results across banks.

II. By imposing standardized calculations regulators can make sure that banks are not missing key risks in their calculations.

III. By imposing standardized calculations regulators can make sure that banks do not use capital calculations to game the banking regulation system.

Options:
A.

I

B.

I,II

C.

II, III

D.

I,II, III

Questions 114

Under the Standardized Approach in the Basel II Accord, what is the risk weight of a non-performing corporate loan?

Options:
A.

150%, if no specific provision has been allocated to the loan, and payments are more than 90 days overdue

B.

100%, if a specific provision is less than 75% of the obligation’s outstanding amount and payments aremore than 90 days overdue

C.

200%, if no specific provision has been allocated to the loan, and payments are more than 120 days overdue

D.

125%, if a specific provision is more than 20% of the obligation’s outstanding amount and payments are more than 120 days overdue

Questions 115

Which one of the following four alternatives correctly identifies the purpose of a clearinghouse in trading activities?

Options:
A.

Reduction of counterparty risk and liquidity risk

B.

Reduction of basis risk and mark-to-market risk

C.

Reduction of operational risk and credit risk

D.

Reduction of market risk and credit risk

Questions 116

A retail credit score of above 680 is generally considered to be "prime." The term "prime" means the borrower is what?

Options:
A.

Low quality with low risk of default

B.

High quality with high risk of default

C.

Low quality with high risk of default

D.

High quality with low risk of default