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Free GARP 2016-FRR Practice Exam with Questions & Answers | Set: 6

Questions 51

Most loans and deposits in the interbank market have a maturity of:

Options:
A.

More than 10 years

B.

More than 5 years but less than 10 years

C.

More than 3 years but less than 5 years

D.

Less than one year

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Questions 52

To hedge a foreign exchange exposure on behalf of a client, a small regional bank seeks to enter into an offsetting foreign exchange transaction. It cannot access the large and liquid interbank market open primarily to larger banks. At which one of the following exchanges can the smaller bank trade the currency futures contracts?

I. The Tokyo Futures Exchange

II. The Euronext-Liffe Exchange

III. The Chicago Mercantile Exchange

Options:
A.

I

B.

III

C.

II, III

D.

I, II, III

Questions 53

A large energy company has a recurring foreign currency demands, and seeks to use options with a pay-off based on the average price of the underlying asset on either a few specific chosen dates or all dates within a specific pricing window. Which one of the following four option types would most likely meet these specific foreign currency demands?

Options:
A.

American options

B.

European options

C.

Asian options

D.

Chooser options

Questions 54

As Japan ___ its budget deficits and ___ its dependence on debt, the Japanese currency, JPY, would ___ in value against other currencies.

Options:
A.

Reduces, reduces, appreciate

B.

Reduces, reduces, depreciate

C.

Increases, reduces, appreciate

D.

Reduces, increases, depreciate

Questions 55

Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment. What interest rate should Alpha Bank charge on the no-payment loan to Delta Industrial Machinery Corporation?

Options:
A.

8%

B.

9%

C.

10%

D.

12%

Questions 56

From the bank's point of view, repricing the retail debt portfolio will introduce risks of fluctuations in:

I. Duration

II. Loss given default

III. Interest rates

IV. Bank spreads

Options:
A.

I

B.

II

C.

I, II

D.

III, IV

Questions 57

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

Options:
A.

I, IV

B.

I, II

C.

I, II, III

D.

II, III, IV

Questions 58

Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment.

What may happen to the Delta's initial credit parameter and the value of its loan if the machinery industry experiences adverse structural changes?

Options:
A.

Probability of default and loss at default may decrease simultaneously, while duration rises causing the loan value to decrease.

B.

Probability of default and loss at default may decrease simultaneously, while duration falls causing the loan value to decrease.

C.

Probability of default and loss at default may increase simultaneously, while duration rises causing the loan value to decrease.

D.

Probability of default and loss at default may increase simultaneously, while duration falls causing the loan value to decrease.

Questions 59

The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential failure of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed, the principal and the contractual interest payments, would be called ___.

Options:
A.

Credit risk; market risk

B.

Market risk; credit risk

C.

Credit risk; performance risk

D.

Performance risk; credit risk

Questions 60

By lowering the spread on lower credit quality borrowers, the bank will typically achieve all of the following outcomes EXCEPT:

Options:
A.

Aggressively courting of new business

B.

Lower probability of default

C.

Rapid growth

D.

Higher losses in case of default