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2016-FRR Exam Dumps - GARP Financial Risk and Regulation Questions and Answers

Question # 94

Except for the credit quality of the Credit Default Swap protection seller, the following relationship correctly approximates the yield on a risk-free instrument:

Options:

A.

Bond + CDS

B.

Bond + CDS + Market Spread

C.

Bond - CDS

D.

Bond - CDS - Market spread

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Question # 95

When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no credit losses.

Options:

A.

Symmetric; less

B.

Symmetric; greater

C.

Asymmetric; less

D.

Asymmetric; greater

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Question # 96

Which one of the following four statements correctly defines a non-exotic call option?

Options:

A.

A call option gives the call option buyer the obligation, but not the right, to buy the underlying instrument at a known price in the future.

B.

A call option gives the call option buyer the obligation, but not the right, to sell the underlying instrument at a known price in the future

C.

A call option gives the call option buyer the right, but not the obligation, to buy the underlying instrument at a known price in the future

D.

A call option gives the call option buyer the right, but not the obligation, to sell the underlying instrument at a known price in the future

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Question # 97

All of the following performance statistics typically benefit country's creditworthiness EXCEPT:

Options:

A.

Low unemployment

B.

Low inflation

C.

High degrees of investment

D.

Low degrees of savings

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Question # 98

A bank customer chooses a mortgage with low initial payments and payments that increase over time because the customer knows that she will have trouble making payments in the early years of the loan. The bank makes this type of mortgage with the same default assumptions uses for ordinary mortgages, thus underestimating the risk of default and becoming exposed to:

Options:

A.

Moral hazard

B.

Adverse selection

C.

Banking speculation

D.

Sampling bias

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Question # 99

Which of the following attributes are typical for early models of statistical credit analysis?

Options:

A.

These models assumed the default of any obligor was independent of the default of any other.

B.

The underlying default assumptions were analytically inconvenient.

C.

The underlying default assumptions failed to develop relatively simple formulas for the determination of portfolio credit risk.

D.

These models effectively incorporated herd behavior.

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Question # 100

Which one of the following four features is NOT a typical characteristic of futures contracts?

Options:

A.

Fixed notional amount per contract

B.

Fixed dates for delivery

C.

Traded Over-the-counter only

D.

Daily margin calls

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Question # 101

After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ risk on the residual pieces of the credit portfolio, and as a result it ___ return on equity for the bank.

Options:

A.

Decreases; increases;

B.

Increases; increases;

C.

Increases; decreases;

D.

Decreases; increases;

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Question # 102

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 has 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, what would be the probability of a cumulative $40 million loss from these two mortgage borrowers?

Options:

A.

0.01%

B.

0.1%

C.

1%

D.

10%

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Question # 103

For which one of the following four reasons do corporate customers use foreign exchange derivatives?

I. To lock in the current value of foreign-denominated receivables

II. To lock in the current value of foreign-denominated payables

III. To lock in the value of expected future foreign-denominated receivables

IV. To lock in the value of expected future foreign-denominated payables

Options:

A.

II

B.

I and IV

C.

II and III

D.

I, II, III, IV

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Exam Code: 2016-FRR
Exam Name: Financial Risk and Regulation (FRR) Series
Last Update: Apr 2, 2025
Questions: 387
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