[Dec 26, 2024] Get Up-To-Date Real Exam Questions for 2016-FRR with New Materials
Updated 2016-FRR Certification Exam Sample Questions
NEW QUESTION # 35
Mega Bank has $100 million in deposits on which it pays 3% interest, and $20 million in equity on which it
pays no interest. The loan portfolio of $120 million earns an average rate of 10%. If the rates remain the same,
what is the net interest income of Mega Bank?
- A. $5 million per year
- B. $2 million per year
- C. $9 million per year
- D. $12 million per year
Answer: C
NEW QUESTION # 36
SigmaBank has many branches that offer the same products and services. Which one of the four following statement presents an advantage of using RCSA questionnaire approach in the SigmaBank's operational risk framework?
- A. It provides a forum for an in-depth discussion of the operational risks in the firm.
- B. The questionnaires are usually sent to specific nominated parties for completion.
- C. The results can be collected electronically and the responses compared to identify themes, trends and areas of potential control weakness or elevated risk.
- D. This approach ensures that there has been full participation in the scoring, rather than a single view.
Answer: C
Explanation:
Using the RCSA questionnaire approach at SigmaBank, which has many branches offering the same products and services, allows for the collection of responses electronically. This facilitates easy comparison of results to identify common themes, trends, and areas of potential control weaknesses or elevated risks across branches.
NEW QUESTION # 37
Which one of the following four statements regarding counterparty credit risk is INCORRECT?
- A. The exposure at default can be negatively correlated to probability of default.
- B. Dynamic collateral provisions often increase counterparty risk considerably.
- C. Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.
- D. The exposure at default is variable due to fluctuations in swap valuations.
Answer: B
Explanation:
* Counterparty credit risk refers to the risk that the counterparty to a financial contract will default before the final settlement of the contract's cash flows, resulting in a financial loss. This is correctly stated in option A.
* The exposure at default (EAD) is indeed variable due to fluctuations in the underlying valuations, such as swaps, as mentioned in option B.
* The EAD can be negatively correlated with the probability of default (PD) because as the credit quality of a counterparty deteriorates, their exposure may also decline, correctly stated in option C.
* However, dynamic collateral provisions are typically designed to reduce counterparty risk by adjusting collateral requirements based on changes in exposure and credit quality, not to increase it. Therefore, option D is incorrect.
References:
* How Finance Works: "Counterparty credit risk and its management through collateral provisions is a critical aspect of financial risk management."
NEW QUESTION # 38
Since most consumers of natural gas do not have the ability to store it, they contract with gas suppliers to
receive a flow of natural gas equal to a specific number of MMBT's per day (MMBT is millions of British
Termal Units, the unit in which gas futures are quoted on the U.S. markets). To protect against price increases
with a bank, the natural gas consumer, concerned with the average price over the course of the month, will use
the following contracts:
- A. Flexible volume options
- B. Asian options
- C. Compound options
- D. American options
Answer: B
NEW QUESTION # 39
All of the following factors generally explain the equity bid-offer spread in a market EXCEPT:
- A. Competition among market makers
- B. Market depth
- C. Interest rates
- D. Market volatility
Answer: C
Explanation:
The equity bid-offer spread in a market is influenced by several factors:
* Market Volatility:
* Higher volatility generally widens the bid-offer spread as market makers hedge against increased risk.
* Competition Among Market Makers:
* Increased competition usually narrows the spread due to better prices offered to attract trades.
* Market Depth:
* Deeper markets with more participants and higher trading volumes typically have narrower spreads.
Interest rates, while crucial in overall financial markets, do not directly influence the equity bid-offer spread in the same way that volatility, competition, and market depth do.
ReferencesSource: How Finance Works
NEW QUESTION # 40
Which one of the following four option types has two strike prices?
- A. Asian options
- B. Shout options
- C. Range options
- D. American options
Answer: B
NEW QUESTION # 41
What is the order in which creditors and shareholders get repaid in the event of a bank liquidation?
- A. Depositors, debt holders, shareholders.
- B. Depositors, shareholders, depositors.
- C. Debt holders, depositors, shareholders.
- D. Depositors, shareholders, debt holders.
Answer: A
Explanation:
In the event of a bank liquidation, the order of repayment is as follows:
* Depositors: They are given priority as they are often covered by deposit insurance schemes to maintain confidence in the banking system.
* Debt Holders: After depositors, holders of the bank's debt are repaid. This includes both secured and unsecured creditors, with secured creditors having a higher claim.
* Shareholders: They are last in line to receive any remaining funds after all other obligations have been satisfied. Common shareholders are the last to be paid, after preferred shareholders.
This hierarchy ensures that the most senior and secured claims are addressed first, providing a structured approach to liquidation.References: How Finance Works, discussions on bank liquidation processes and the hierarchy of claims.
NEW QUESTION # 42
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 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 and sells the real at
this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange
matched transaction. What is the impact of this transaction on the bank's risk profile?
- A. This transaction eliminates market risk.
- B. This transaction eliminates operational risk.
- C. This transaction eliminates credit risk.
- D. This transaction eliminates counterparty risk.
Answer: A
NEW QUESTION # 43
If the yield on the 3-month risk free bonds issued by the U.S government is 0.5%, and the 3-month LIBOR rate is 2.5%, what is the TED spread?
- A. -2.0%
- B. 3.0%
- C. 0.5%
- D. 2.0%
Answer: D
Explanation:
The TED spread is calculated as the difference between the interest rates on interbank loans and short-term
U.S. government debt (T-bills). Specifically, the TED spread = LIBOR - Treasury bill rate. In this case, the
3-month LIBOR rate is 2.5% and the yield on the 3-month U.S. Treasury bill is 0.5%. Thus, the TED spread is
2.5% - 0.5% = 2.0%.
NEW QUESTION # 44
Which one of the four following statements regarding minimum loss data standards is not correct?
- A. The loss data entry should only include the date when the event was reported.
- B. The loss data entry must include the actual loss amount.
- C. The loss data program must comprehensively capture all material activities.
- D. The loss data entry may include descriptive information about the drivers or causes of the loss event.
Answer: A
NEW QUESTION # 45
A large multinational bank is concerned that their duration measures may not be accurate since the yield curve shifts are not parallel. Which of the following statements would be typically observed regarding variability of interest rates?
- A. Short-term rates are less variable than long-term rates.
- B. Short-term rates are equally variable as long-term rates.
- C. Short-term rates are more variable than long-term rates.
- D. Short-term rates and long-term rates always move in opposite directions.
Answer: C
Explanation:
Interest rates can vary based on the term of the debt instrument. Generally, short-term interest rates are more sensitive to changes in monetary policy and economic conditions, leading to higher variability compared to long-term interest rates. This is because short-term rates are directly influenced by central bank policies, such as changes in the federal funds rate, which can lead to frequent fluctuations. Long-term rates, on the other hand, are influenced more by long-term economic expectations and inflation forecasts, which tend to be more stable over time.
NEW QUESTION # 46
Which of the following statements describes correctly the objectives of position mapping ?
- A. Position mapping groups similar positions into one group based on the closeness of their respective VaR.
- B. Position mapping reduces the possible number of risk factors to a computationally manageable level.
- C. II and IV
- D. Position mapping models risk factors affecting the value of a position as combination of core risk factors used in the VaR calculations.
- E. I and II
- F. I, II and III
- G. II, III, and IV
- H. For VaR calculations, mapping converts positions based on their deltas to underlying factor risks.
Answer: H
Explanation:
Position mapping is used in risk management to simplify the assessment of risks associated with various positions. The objectives of position mapping are:
* For VaR (Value at Risk) calculations, it converts positions based on their deltas to underlying factor risks. This means mapping the positions to their underlying risk factors to make the complex position simpler to manage and evaluate.
* Position mapping models risk factors affecting the value of a position as a combination of core risk factors used in the VaR calculations. This involves breaking down the complex risk factors into more manageable and fundamental risk components that can be easily analyzed.
By focusing on these two objectives, position mapping helps in both simplifying the risk assessment process and in ensuring that the primary risk factors are correctly identified and managed.
NEW QUESTION # 47
According to the largest global poll of foreign exchange market participants, which one of the following four global financial institutions was the most active participant in the global foreign exchange market?
- A. Deutsche Bank
- B. UBS AG
- C. Citibank
- D. Barclays Capital
Answer: A
Explanation:
According to the largest global poll of foreign exchange market participants, Deutsche Bank has been identified as the most active participant in the global foreign exchange market. This status is typically attributed to their extensive trading operations and significant market influence.
NEW QUESTION # 48
The Sarbanes-Oxley Act includes one of the following four requirements for financial institutions in the United States:
- A. Regulatory response to systemic risk requirements
- B. Risk and control requirements
- C. Market discipline requirements
- D. Capital allocation requirements
Answer: B
Explanation:
The Sarbanes-Oxley Act includes requirements for financial institutions in the United States regarding risk and control. It aims to enhance corporate governance and strengthen the internal controls and financial reporting processes. The other options such as market discipline requirements, capital allocation requirements, and regulatory response to systemic risk requirements are not specifically covered by the Sarbanes-Oxley Act.References:Sarbanes-Oxley Act requirements as outlined in Financial Risk and Regulation documents.
NEW QUESTION # 49
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
Explanation:
The value of foreign exchange options is influenced by several factors, including:
* Change in the value of the underlying (I): This directly affects the option's intrinsic value.
* Change in the perception of future volatility (II): Higher expected volatility increases the option's potential payoff.
* Change in interest rates (III): This affects the cost of carrying positions in the underlying asset.
* Passage of time (IV): This influences the time value of the option. All these factors collectively impact the pricing dynamics of options throughout the trading day.
NEW QUESTION # 50
What is the role of market risk management function within a bank?
I. Control and minimize the risks the bank should take.
II. Establish a comprehensive market risk policy framework.
III. Define, approve and monitor risk limits.
IV. Perform stress tests and other qualitative risk assessments.
- A. I and III
- B. II and IV
- C. II, III, and IV
- D. I, II and III
Answer: C
NEW QUESTION # 51
To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements:
I. Bonds
II. Marketable loans
III. Credit card loans
- A. I
- B. II
- C. I, II
- D. II, III
Answer: C
NEW QUESTION # 52
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You should also be aware of the following information about the 2016-FRR
To maintain the GARP 2016-FRR Certification, you are required to have continuous learning. If you are not able to study for this certification every year, you will lose the certificate. You can maintain your certification status by taking advantage of various alternative paths to the examination. Self-study is one of these routes. You will need to study hard in order to clear it because it has a high passing score. But if you are unable to take it every year, you should consider taking self-study courses instead. This will allow you to keep your skills sharp without the stress of having to take an examination that is very difficult and can be overwhelming for some people. Copyright law protects the contents of our GARP 2016-FRR exam dumps to ensure that they are always updated. If you are interested in getting your certification to work for you, do not hesitate to contact us.
If you fail the GARP-FRR, you will have to wait until the next examination window opens. The next window generally starts within three months of the previous one ending. In order to pass the next examination, you should follow a successful study plan that includes self-study resources and live training courses. It is recommended by 2016-FRR practice exams that you schedule multiple dates because there is a high possibility that you will not be able to take any of them. If there are too many changes in your schedule, you will not be ready to take 2016-FRR on your scheduled dates. It is necessary that you give yourself enough time to prepare for this successfully.
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