2016-FRR Certification Overview - [Nov 18, 2024] Latest 2016-FRR PDF Dumps
The Best GARP 2016-FRR Study Guides and Dumps of 2024
NEW QUESTION # 51
Which one of the following areas does not typically report into a central operational risk function?
- A. Embedded operational risk coordinators or specialists or managers
- B. Geopolitical and strategic planning
- C. Business continuity planning
- D. Information security
Answer: B
Explanation:
Areas that typically report into a central operational risk function include business continuity planning, information security, and embedded operational risk coordinators or specialists or managers. Geopolitical and strategic planning, while important, does not typically report into the central operational risk function but rather into separate strategic or planning departments.References:Operational risk function organizational structure.
NEW QUESTION # 52
In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the
entire trading day. Which of the following factors would most likely affect foreign exchange option values?
I. Change in the value of the underlying
II. Change in the perception of future volatility
III. Change in interest rates
IV. Passage of time
- A. I, II, III, IV
- B. I, II, III
- C. I, II
- D. II, III
Answer: A
NEW QUESTION # 53
Which of the following statements describes correctly the objectives of position mapping ?
- A. Position mapping reduces the possible number of risk factors to a computationally manageable level.
- B. I, II and III
- C. I and II
- D. II and IV
- E. Position mapping groups similar positions into one group based on the closeness of their respective
VaR. - F. For VaR calculations, mapping converts positions based on their deltas to underlying factor risks.
- G. II, III, and IV
- H. Position mapping models risk factors affecting the value of a position as combination of core risk factors
used in the VaR calculations.
Answer: H
NEW QUESTION # 54
Which one of the following is a reason for a bank to keep a commercial loan in its portfolio until maturity?
I. Commercial loans usually have attractive risk-return profile.
II. Commercial loans are difficult to sell due to non standard features.
III. Commercial loans could be used to maintain good relations with important customers.
IV. The credit risk in commercial loans is low.
- A. IV only
- B. II and IV
- C. III and IV
- D. I, II and III
Answer: D
NEW QUESTION # 55
Oliver McCarthy owns a portfolio of bonds. Which of the following choices equals the modified duration of Oliver's portfolio?
- A. Value-weighted average modified duration of the component bonds
- B. Minimum of the modified durations of the component bonds
- C. Coupon-weighted average modified duration of the component bonds
- D. Maximum of the modified durations of component bonds
Answer: A
Explanation:
The modified duration of a bond portfolio is calculated as the value-weighted average of the modified durations of the component bonds. This approach accounts for the proportion of the total portfolio value that each bond represents, providing a more accurate measure of the portfolio's sensitivity to changes in interest rates.
NEW QUESTION # 56
Which one of the following four exercise features is typical for the most exchange-traded equity options?
- A. American exercise feature
- B. A shout option exercise feature
- C. Asian exercise feature
- D. European exercise feature
Answer: A
Explanation:
Most exchange-traded equity options in the U.S. typically have the American exercise feature. This feature allows the holder to exercise the option at any time before and including the expiration date, providing greater flexibility compared to the European exercise feature, which only allows exercise at expiration. The Asian and shout option features are less common and not typically associated with exchange-traded equity options.
NEW QUESTION # 57
Which one of the four following statements regarding minimum loss data standards is not correct?
- A. The loss data entry may include descriptive information about the drivers or causes of the loss event.
- B. The loss data program must comprehensively capture all material activities.
- C. The loss data entry should only include the date when the event was reported.
- D. The loss data entry must include the actual loss amount.
Answer: C
Explanation:
* Option A: The loss data entry must include the actual loss amount.
* Correct as it ensures accurate financial impact recording.
* Option B: The loss data program must comprehensively capture all material activities.
* Correct, necessary for a thorough risk management program.
* Option C: The loss data entry should only include the date when the event was reported.
* Incorrect, as it is essential to capture both the event date and the report date to understand the timeline of the incident.
* Option D: The loss data entry may include descriptive information about the drivers or causes of the loss event.
* Correct, as it provides context and insights into the root causes, aiding in risk analysis and prevention.
NEW QUESTION # 58
AlphaBank's management is evaluating how changes in its business environment could materially impact risk categories. As a result, bank's management decides to implement the structure, which facilitates the discussion in an integrative context, spanning market, credit, and operational risk factors, and encourages transparency and communication between risk disciplines. Which one of the following four approaches should the management choose to achieve this strategic goal?
- A. Scenario-based risk management approach
- B. Regulatory risk management approach
- C. Taxonomy-based risk management approach
- D. Enterprise risk management approach
Answer: D
Explanation:
To achieve a strategic goal that facilitates discussion in an integrative context spanning market, credit, and operational risk factors, and encourages transparency and communication between risk disciplines, AlphaBank's management should choose the enterprise risk management (ERM) approach. ERM integrates all types of risks and promotes a comprehensive risk management culture within the organization.References:Enterprise risk management approach as described in Financial Risk and Regulation documents.
NEW QUESTION # 59
A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5% semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk manager of the bank is concerned about the sensitivity to interest rates. Which of the following statements are true?
- A. The price of the bond paying floating interest is more sensitive to interest rates than the bond paying fixed interest.
- B. Both bond prices are equally sensitive to interest rates.
- C. The given information is not enough to determine the sensitivity of the bond prices.
- D. The price of the bond paying fixed interest is more sensitive to interest rates than the bond paying floating interest.
Answer: D
Explanation:
A bond that pays fixed interest is more sensitive to changes in interest rates than a bond that pays floating interest. This is because the fixed interest bond's coupon payments are constant, and its price will fluctuate more as interest rates change. In contrast, the floating interest bond adjusts its coupon payments according to the current interest rates, making its price less sensitive to changes in the market interest rates.
NEW QUESTION # 60
Which one of the four following statements describes a specific characteristic of risk and control self-assessments (RCSA) which distinguishes it from both control assessments and risk and control assessments?
- A. RCSA includes a risk assessment in addition to a control assessment.
- B. RCSA is conducted by a third party, perhaps audit, compliance or the Sarbanes-Oxley team.
- C. RCSA tests a control's effectiveness against set criteria and issues a pass/fail or level of effectiveness score.
- D. RCSA is subjective by nature.
Answer: A
Explanation:
Risk and Control Self-Assessments (RCSA) distinguish themselves from other types of assessments because they include both a risk assessment and a control assessment. This combined approach allows for a comprehensive view of both the potential risks and the effectiveness of the controls in place to mitigate those risks.
NEW QUESTION # 61
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. Technical trading
- B. Market timing trading
- C. Contrarian trading
- D. Black box trading
Answer: B
NEW QUESTION # 62
Which one of the following four statements about the "market-maker" trading strategy is INCORRECT?
- A. This strategy is independent of market liquidity and number of other market makers.
- B. A market maker can benefit from the market information she gets from the trades she is asked to
execute. - C. A market maker that attracts buy and sell orders can make a profit from the spread quoted between the
buy and sell price. - D. This risk in this strategy is that traders have to take positions that may quickly incur a loss.
Answer: A
NEW QUESTION # 63
Which one of the following four features is NOT a typical characteristic of futures contracts?
- A. Fixed notional amount per contract
- B. Daily margin calls
- C. Traded Over-the-counter only
- D. Fixed dates for delivery
Answer: C
NEW QUESTION # 64
Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield curve?
- A. Take positions to reduce the duration
- B. Since the portfolio is duration hedged Sam does not need to take additional positions.
- C. Take positions to make the convexity zero
- D. Take positions to increase the duration
Answer: C
Explanation:
When hedging a portfolio of bonds against shifts in the yield curve, using only duration as a measure is effective for small parallel shifts. However, for larger shifts, convexity becomes significant. Convexity accounts for the curvature in the relationship between bond prices and yields, providing a more accurate measure of interest rate risk. To ensure the portfolio is hedged against larger parallel shifts, Sam should take positions that neutralize the portfolio's convexity. This involves adjusting the portfolio in a way that it is less sensitive to changes in interest rates, providing a second-order measure of risk beyond duration.
NEW QUESTION # 65
By lowering the spread on lower credit quality borrowers, the bank will typically achieve all of the following
outcomes EXCEPT:
- A. Rapid growth
- B. Aggressively courting of new business
- C. Lower probability of default
- D. Higher losses in case of default
Answer: C
NEW QUESTION # 66
Which one of the following statements describes Macauley's duration?
- A. The change in value of a bond when yields increase by 1 basis point.
- B. The weighted average life of the bond payments.
- C. The percentage change in a bond price when the yields change by 1%.
- D. The present value of the future cash flows of a bond calculated at a yield equal to 1%.
Answer: B
NEW QUESTION # 67
According to Basel II what constitutes Tier 1 capital?
- A. Profits to reserves and innovative Tier 1 capital
- B. Equity capital and accrued profits to reserves
- C. Equity capital and core capital
- D. Core capital and innovative Tier 1 capital.
Answer: D
NEW QUESTION # 68
Which one of the following four statements about planning for the operational risk framework is
INCORRECT?
- A. Once the elements of an operational risk framework are up and running, they need to be monitored to
ensure they maintain their integrity and do not deteriorate over time. - B. Planning for the operational risk framework suggests that short-term planning and focus on immediate
benefits is strongly preferred to the long-term planning approach. - C. An operational risk framework is a complex and evolving challenge, and to keep its development under
control it is important to apply strong project management skills to the design and implementation of
each new element. - D. Planning for the operational risk framework involves setting clear goals, realistic milestones and
achievable deliverables that add value.
Answer: B
NEW QUESTION # 69
To reduce the variability of net interest income, Gamma Bank can swap positions that make its duration gap equal to
- A. 0
- B. 1
- C. 2
- D. 0.5
Answer: B
Explanation:
To minimize the variability of net interest income, Gamma Bank should aim to have a duration gap of zero.
This means that the weighted average duration of assets matches the weighted average duration of liabilities, thus immunizing the bank's net interest income against changes in interest rates.
NEW QUESTION # 70
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GARP 2016-FRR exam is recognized globally as a mark of excellence in risk management and regulation. Professionals who pass 2016-FRR exam are in high demand in the financial industry, and are often sought after by top-tier companies and institutions. Financial Risk and Regulation (FRR) Series certification provides a competitive advantage in a constantly evolving field and opens up new opportunities for career growth and advancement.
The Global Association of Risk Professionals (GARP) is a premier association that provides education, training, and certification to professionals who want to specialize in risk management. One of the certification exams offered by GARP is the Financial Risk and Regulation (FRR) Series. The FRR Series is designed to test the knowledge and skills of professionals in the areas of financial risk management, regulatory compliance, and governance. 2016-FRR exam is based on the latest industry standards and best practices, and is recognized around the world as a mark of excellence.
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