Free GARP 2016-FRR Exam Dumps Questions & Answers

Which one of the following is a typical source of funding for a commercial bank's assets?

• A.  Commodities markets
• B.  Consumer deposits
• C.  Cash
• D.  Commercial lending

Which one of the following statements accurately describes market risk tolerance?

• A.  Market risk tolerance is the maximum likely gain in the market value of portfolios over a given period of time.
• B.  Market risk tolerance is the maximum loss in the market value of financial instruments caused by the failure of the counterparty to meet its obligations.
• C.  Market risk tolerance is the maximum loss the bank is willing to bear due to fluctuations in market prices and rates.
• D.  Market risk tolerance is the minimum loss the bank is willing to bear due to fluctuations in market prices and rates.

The risk management department of VegaBank wants to set guidelines on commodity carry trades. Which of the following strategies should she pursue to achieve a profitable commodity carry?
I. Buy short-term commodity futures and sell longer-dated position when the curve is in contango.
II. Buy short-term commodity futures and sell longer-dated position when the curve is in backwardation.
III. Buy long-term commodity futures and sell shorter-dated positions when the curve is in contango.
IV. Buy long-term commodity futures and sell shorter-dated positions when the curve is in backwardation.

• A.  II, IV
• B.  I, III
• C.  I, II
• D.  I, IV

A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss than if the market had remained stable. However, if the market drops, the customer will benefit from the incorrect accounting and gain from this trade. This trading scenario can serve as an example that

• A.  Market risk in this transaction can magnify operational risk.
• B.  Strategic risk in this transaction can magnify operational risk.
• C.  Liquidity risk in this transaction can magnify operational risk.
• D.  Credit risk in this transaction can magnify operational risk.

Suppose that a regulator deems all corporate debt to have the same risk level. Which of the following behavior of banks would be an example of regulatory arbitrage?

• A.  Banks increase their exposure to corporate debt.
• B.  Banks shift their exposure to less risky corporate debt.
• C.  Banks shift their exposure to more risky corporate debt.
• D.  Banks decrease their exposure to corporate debt.