GARP 2016-FRR Exam (page: 3)
GARP Financial Risk and Regulation (FRR) Series
Updated on: 24-Mar-2026

Viewing Page 3 of 70

Of all the risk factors in loan pricing, which one of the following four choices is likely to be the least significant?

  1. Probability of default
  2. Duration of default
  3. Loss given default
  4. Exposure at default

Answer(s): B



Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's expected loss be? What is the expected loss of this loan?

  1. $300
  2. $550
  3. $750
  4. $1,050

Answer(s): D



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?

  1. Assessing aggregate exposure at default at various time points and at various confidence levels
  2. Simplifying individual credit exposures so that they can be combined into a simplified expression of portfolio risk for the bank
  3. Using stress testing techniques to forecast underlying macroeconomic factors and bank's idiosyncratic risks
  4. Analyzing distribution of bank's credit losses and mapping credit risks at various statistical levels

Answer(s): A



Typically, which one of the following four option risk measures will be used to determine the number of options to use to hedge the underlying position?

  1. Vega
  2. Rho
  3. Delta
  4. Theta

Answer(s): C



What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?

  1. The long term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.
  2. The long term rates must rise enough to get some borrowers to borrow long-term and some lenders to lend short-term.
  3. The short term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.
  4. The short term rates must fall enough to get some borrowers to borrow long-term and some lenders to lend short-term.

Answer(s): A



Viewing Page 3 of 70



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