Free GARP 2016-FRR Exam Dumps Questions & Answers

Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should Unico take to limit its risk exposure?

• A.  A passive hedging strategy that allows the traders to price transactions with customers and other banks, at the relevant bid price on the market.
• B.  A matched book strategy that allows the trading desk to match all customer positions immediately with an equal and opposite position by trading internally or with another bank.
• C.  A market-maker strategy that allows the traders to quote a buy and sell price to customers and other banks and to trade at the relevant price on the sell side of the market.
• D.  A covering strategy that manages positions in the product by executing covering deals or hedging deal at the discretion of the trading des.

Which of the following are among the main uses of risk reports?
I. Identification of exceptional situations that require managerial attention.
II. Display the relative risk among different trades.
III. Specify how RAROC will be maximized within the bank.
IV. Estimate the overall risk levels of the bank.

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

A bank customer chooses a mortgage with low initial payments and payments that increase over time because the customer knows that she will have trouble making payments in the early years of the loan. The bank makes this type of mortgage with the same default assumptions uses for ordinary mortgages, thus underestimating the risk of default and becoming exposed to:

• A.  Banking speculation
• B.  Moral hazard
• C.  Sampling bias
• D.  Adverse selection

A corporate bond was trading with 2%probability of default and 60% loss given default. Due to the credit crisis the probability of default increased to 10% and the loss given default increased to 100%. Assuming that the risk premium remained the same how did the credit spread change?

• A.  Decreased by 880 basis points
• B.  Increased by 880 basis points
• C.  Increased by 1000 basis points
• D.  Increased by 1120 basis points

A risk associate is trying to determine the required risk-adjusted rate of return on a stock using the Capital Asset Pricing Model. Which of the following equations should she use to calculate the required return?

• A.  Required return = (1-risk free return) + beta x market risk
• B.  Required return = risk-free return + beta x market risk
• C.  Required return = risk-free return + beta x (1 - market risk)
• D.  Required return = risk-free return + 1/beta x market risk