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

Question # 44

A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian dollars and sell Brazilian reals. Alpha bank does not hold Brazilian reals so it asks for a quote to buy Brazilian reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer, sells the reals, and receives AUD 1,010,000. To perform foreign exchange matched position trading, the banks should

Options:

A.

Immediately buy the real at the market rate of 100 and pay AUD 1,000,000.

B.

Immediately buy the real above the market rate of 105 and pay AUD 1,050,050.

C.

Immediately sell the real at the market rate of 100 and receive AUD 1,000,000.

D.

Immediately sell the real above the market rate of 105 and receive AUD 1,050,050.

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Question # 45

Which one of the following four statements about the "market-maker" trading strategy is INCORRECT?

Options:

A.

A market maker that attracts buy and sell orders can make a profit from the spread quoted between the buy and sell price.

B.

A market maker can benefit from the market information she gets from the trades she is asked to execute.

C.

This strategy is independent of market liquidity and number of other market makers.

D.

This risk in this strategy is that traders have to take positions that may quickly incur a loss.

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Question # 46

A credit analyst wants to determine if her bank is taking too much credit risk. Which one of the following four strategies will typically provide the most convenient approach to quantify the credit risk exposure for the bank?

Options:

A.

Assessing aggregate exposure at default at various time points and at various confidence levels

B.

Simplifying individual credit exposures so that they can be combined into a simplified expression of portfolio risk for the bank

C.

Using stress testing techniques to forecast underlying macroeconomic factors and bank's idiosyncratic risks

D.

Analyzing distribution of bank's credit losses and mapping credit risks at various statistical levels

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Question # 47

Which one of the following four options is NOT a typical component of a currency swap?

Options:

A.

An initial currency exchange of the notional amount

B.

Denomination of the original notional amount into a foreign currency

C.

Periodic exchange of interest payments in different currencies

D.

A final currency exchange

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Question # 48

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

Options:

A.

I, III

B.

II, IV

C.

I, II, III

D.

II, III, IV

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Question # 49

Which one of the following changes would typically increase the price of a fixed income instrument, such as a bond?

Options:

A.

Decrease in inflation rates in a country.

B.

Increase in time to maturity.

C.

Increase in risk premium.

D.

Increase in demand for goods and services.

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Question # 50

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. Six months after Alpha Bank provides USD $1 million loan to the Delta Industrial Machinery Corporation, a new competitor enters the machinery industry, causing Delta to adjust its prices and mark down the value of its inventory. Hence, the probability of defaultincreases from 2% to 10% and the loss given default increases from 50% to 75%. If Alpha Bank can reprice the loan, what should the new rate be?

Options:

A.

10%

B.

13%

C.

16.5%

D.

20.5%

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Question # 51

A financial analyst is trying to distinguish credit risk from market risk. A $100 loan collateralized with $200 in stock has limited ___, but an uncollateralized obligation issued by a large bank to pay an amount linked to the long-term performance of the Nikkei 225 Index that measures the performance of the leading Japanese stocks on the Tokyo Stock Exchange likely has more ___ than ___.

Options:

A.

Legal risk; market risk; credit risk

B.

Market risk; market risk; credit risk

C.

Market risk; credit risk; market risk

D.

Credit risk, legal risk; market risk

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Question # 52

Which one of the following four statements on the seniority of corporate bonds is incorrect?

Options:

A.

Senior bonds typically have lower credit spreads than junior bonds with the same maturity and payment characteristics.

B.

Seniority refers to the priority of a bond in bankruptcy.

C.

Junior bonds always pay higher coupons than subordinated bonds.

D.

In bankruptcy, holders of senior bonds are paid in full before any holders of subordinated bonds receive payment.

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Question # 53

A credit portfolio manager analyzes a large retail credit portfolio. Which of the following factors will represent typical disadvantages of market-linked credit risk drivers?

I. Need to supply a large number of input parameters to the model

II. Slow computation speed due to higher simulation complexity

III. Non-linear nature of the model applicable to a specific type of credit portfolios

IV. Need to estimate a large number of unknown variable and use approximations

Options:

A.

I

B.

I, II

C.

II, III

D.

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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