GARP 2016-FRR Exam (page: 10)
GARP Financial Risk and Regulation (FRR) Series
Updated on: 09-Feb-2026

Viewing Page 10 of 70

Which one of the following four alternatives lists the three most widely traded currencies on the global foreign exchange market, as of April 2007, in the decreasing order of market share? EUR is the abbreviation of the European euro, JPY is for the Japanese yen, and USD is for the United States dollar, respectively.

  1. JPY, EUR, USD
  2. USD, EUR, JPY
  3. USD, JPY, EUR
  4. EUR, USD, JPY

Answer(s): B



By foreign exchange market convention, spot foreign exchange transactions are to be exchanged at the spot date based on the following settlement rule:

  1. One-day rule
  2. Two-day rule
  3. Three-day rule
  4. Four-day rule

Answer(s): B



Which one of the following four statements correctly defines credit risk?

  1. Credit risk is the risk that complements market and liquidity risks.
  2. Credit risk is a form of performance risk in contractual relationship.
  3. Credit risk is the risk arising from execution of a company's strategy.
  4. Credit risk is the risk that summarizes the exposures a company or firm assumes when it attempts to operate within a given field or industry.

Answer(s): B



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 default increases 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?

  1. 10%
  2. 13%
  3. 16.5%
  4. 20.5%

Answer(s): D



Which of the following factors can cause obligors to default at the same time?
I) Obligors may be harmed by exposures to similar risk factors simultaneously.
II) Obligors may exhibit herd behavior.
III) Obligors may be subject to the sampling bias.
IV) Obligors may exhibit speculative bias.

  1. I
  2. II, III
  3. I, II
  4. III, IV

Answer(s): C



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