GARP Financial Risk and Regulation (FRR) Series 2016-FRR Dumps in PDF

Free GARP 2016-FRR Real Questions (page: 11)

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.

  1. Decreases; increases;
  2. Increases; increases;
  3. Increases; decreases;
  4. Decreases; increases;

Answer(s): B



To estimate a partial change in option price, a risk manager will use the following formula:

  1. Partial change in option price = Delta x Change in underlying price
  2. Partial change in option price = Delta x (1+ Change in underlying price)
  3. Partial change in option price = Delta x Gamma x Change in underlying price
  4. Partial change in option price = Delta x Gamma x (1+ Change in underlying price)

Answer(s): A



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

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

Answer(s): D



An options trader is assessing the aggregate risk of her currency options exposures. As an options buyer, she can potentially ___ lose more than the premium originally paid. As an option seller, however, she has a ___ risk on the contract and always receives a premium.

  1. Never, unlimited
  2. Sometimes, unlimited
  3. Never, limited
  4. Sometimes, limited

Answer(s): A



A credit rating analyst wants to determine the expected duration of the default time for a new three-year loan, which has a 2% likelihood of defaulting in the first year, a 3% likelihood of defaulting in the second year, and a 5% likelihood of defaulting the third year.
What is the expected duration for this three-year loan?

  1. 1.5 years
  2. 2.1 years
  3. 2.3 years
  4. 3.7 years

Answer(s): C



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