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2016-FRR Training Solutions | Test 2016-FRR Sample Questions

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GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q333-Q338):

NEW QUESTION # 333
Which one of the following four statements regarding commodity exchanges is INCORRECT?

A. Customers rarely trade physical commodities with banks.
B. Commodity markets are mot liquid than debt markets.
C. Banks trade in OTC contracts primarily to serve clients and facilitate client hedging and lending.
D. Banks have no natural direct exposure to commodities.

Answer: B

NEW QUESTION # 334
Which one of the following statements regarding collateralized mortgage obligations (CMO) is incorrect?

A. CMOs are generally less risky investment than CDOs.
B. CMOs are pools of mortgages that are divided according to the timing of cash flows.
C. CMOs have senior tranches which are considered short-term, low-risk instruments by banks
D. CMOs are asset-backed securities that have pools of collateralized debt obligations (CDOs) as underlying collateral.

Answer: D

Explanation:
Collateralized mortgage obligations (CMOs) are a type of asset-backed security that pools together mortgages and then issues tranches with different maturities and levels of risk. They do not have CDOs as their underlying collateral; instead, they are backed by mortgage loans. Therefore, the statement that CMOs have pools of CDOs as underlying collateral is incorrect.

NEW QUESTION # 335
A risk manager analyzes a long position with a USD 10 million value. To hedge the portfolio, it seeks to use options that decrease JPY 0.50 in value for every JPY 1 increase in the long position. At first approximation, what is the overall exposure to USD depreciation?

A. His overall portfolio has the same exposure to USD as a portfolio that is short USD 5 million.
B. His overall portfolio has the same exposure to USD as a portfolio that is short USD 10 million.
C. His overall portfolio has the same exposure to USD as a portfolio that is long USD 10 million.
D. His overall portfolio has the same exposure to USD as a portfolio that is long USD 5 million.

Answer: B

Explanation:
The risk manager is analyzing a long position worth USD 10 million. To hedge this portfolio, the risk manager uses options that decrease in value by JPY 0.50 for every JPY 1 increase in the long position. This effectively means the options are shorting the currency. Therefore, if the long position is fully hedged by these options, the overall exposure of the portfolio will be equivalent to the full value of the long position but in the opposite direction. Thus, the portfolio has the same exposure to USD as a portfolio that is short USD 10 million.

NEW QUESTION # 336
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 ___ return on equity for the bank, because the cash generated by the risk-transfer and the overall ___ of the bank's exposure to the risk.

A. Increases; reduction;
B. Decreases; reduction;
C. Increases; increase;
D. Decreases; increase;

Answer: A

Explanation:
* By selling off the lower risk portions of the portfolio credit risk, Delta Bank can increase its cash efficiency. This process generates cash which can be reinvested or used for other purposes, effectively improving the return on equity (ROE).
* The overall risk exposure of the bank is reduced as the lower risk assets are sold off, leaving a more concentrated higher-risk portfolio, which still needs to be managed effectively.
References:
* How Finance Works: "Securitization and selling lower risk assets can increase cash efficiency and return on equity by reducing the overall exposure to risk."

NEW QUESTION # 337
Which one of the following statements is an advantage of using implied volatility as an input when calculating
VaR?

A. Current market data is used to determine implied volatilities, which makes them forward looking
measures
B. Loss probabilities from the standard normal distribution are used to compute implied volatilities, which
makes it easy to compute the.
C. Implied volatility assumes volatilities are constant which makes it easy to implement in models.
D. Implied volatilities are better at predicting actual volatilities

Answer: A

NEW QUESTION # 338
......

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High-praised 2016-FRR Practice Exam: Financial Risk and Regulation (FRR) Series Displays High-quality Exam Simulation - VCEPrep

2016-FRR Training Solutions | Test 2016-FRR Sample Questions

GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q333-Q338):

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