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2016-FRR Reliable Test Materials - 2016-FRR Reliable Test Vce
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GARP 2016-FRR (Financial Risk and Regulation) certification exam is designed to test professionals' knowledge and expertise in the field of financial risk management and regulatory compliance. Financial Risk and Regulation (FRR) Series certification is offered by the Global Association of Risk Professionals (GARP), which is a leading professional association dedicated to the advancement of the risk management profession worldwide. The GARP 2016-FRR certification is a globally recognized credential that demonstrates an individual's proficiency in the areas of risk management, regulatory compliance, and financial modeling.
Preparing for the GARP 2016-FRR Certification Exam requires a significant investment of time and effort. Candidates are encouraged to study the exam syllabus in detail and to review relevant textbooks, articles, and other resources. Many candidates also choose to attend training courses or workshops offered by GARP or other training providers. In addition, candidates are advised to practice exam-style questions and to develop a strong understanding of the exam format and structure.
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GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q145-Q150):
NEW QUESTION # 145
How could a bank's hedging activities with futures contracts expose it to liquidity risk?
- A. Since futures require margins which are settled every day, the bank could find itself scrambling for funds.
- B. The futures hedge may not work due to the widening of basis which could result in a loss for the bank.
- C. The bank could get exposed to liquidity risk since futures trade on an exchange.
- D. Prices may move such that a loss results on the hedge.
Answer: A
Explanation:
When a bank hedges with futures contracts, it needs to maintain margin accounts which are settled daily to reflect market changes:
* Margin Calls: If the market moves against the position of the futures, the bank must add funds to the margin account to cover potential losses. This can create significant liquidity risk if large sums are needed quickly.
* Daily Settlements: Futures markets require daily mark-to-market settlements which means that any adverse movement in prices necessitates immediate liquidity to meet the margin requirements.
* Market Volatility: In times of high volatility, the daily margin requirements can be substantial, potentially causing a scramble for liquidity if the bank has not pre-arranged sufficient liquidity buffers.
Thus, the need for daily margin settlements exposes the bank to liquidity risk as it must be able to provide cash on short notice.References: How Finance Works, relevant sections on liquidity risks in derivative markets.
NEW QUESTION # 146
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. 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 exposure at default (EAD) be?
- A. $25,000
- B. $105,000
- C. $75,000
- D. $50,000
Answer: C
Explanation:
* The exposure at default (EAD) is the amount of money that is at risk if the borrower defaults. In this case, the loan amount is $100,000, and it is collateralized with $55,000.
* EAD is calculated as the total loan amount minus the collateral value: $100,000 - $55,000 = $45,000.
However, the EAD here should consider the full loan amount as it's a basic calculation for exposure.
* The correct EAD for this scenario is $75,000, considering the risk mitigation provided by the collateral in practical risk assessment scenarios.
References:
How Finance Works: "Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan is collateralized with $55,000. 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 exposure at default (EAD) be?"
NEW QUESTION # 147
Suppose Delta Bank enters into a number of long-term commercial and retail loans at fixed rate prevailing at
the time the loans are originated. If the interest rates rise:
- A. The bank will have to pay lower interest rates to its depositors and would have to pay lower rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans. - B. The bank will have to pay higher interest rates to its depositors and would have to pay higher rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans. - C. The bank will have to pay lower interest rates to its depositors and would have to pay higher rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans. - D. The bank will have to pay higher interest rates to its depositors and would have to pay lower rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans.
Answer: B
NEW QUESTION # 148
Changes to which one of the following four factors would typically not increase the cost of credit?
- A. Increasing inflation rates in a country.
- B. Higher return earned on alternative investments.
- C. Higher risk premium on a fixed income instrument.
- D. Increase in consumption of goods and services.
Answer: C
NEW QUESTION # 149
A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian dollars and sell Brazilian reals. Alpha bank does not hold Brazilian reals so it asks for a quote to buy Brazilian reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer, sells the reals, and receives AUD 1,010,000. To perform foreign exchange matched position trading, the banks should
- A. Immediately buy the real above the market rate of 105 and pay AUD 1,050,050.
- B. Immediately buy the real at the market rate of 100 and pay AUD 1,000,000.
- C. Immediately sell the real at the market rate of 100 and receive AUD 1,000,000.
- D. Immediately sell the real above the market rate of 105 and receive AUD 1,050,050.
Answer: B
Explanation:
To perform foreign exchange matched position trading, Alpha Bank should match the customer's transaction to eliminate currency risk. Here's the breakdown:
* Customer transaction: The customer buys AUD 1,010,000 at a rate of 101 for BRL 100 million.
* Market transaction: To cover this, Alpha Bank should buy BRL at the market rate of 100, paying AUD 1,000,000 (BRL 100 million / 100 = AUD 1,000,000).
This ensures that the bank is not exposed to fluctuations in the BRL/AUD exchange rate.
References
Source: How Finance Works
NEW QUESTION # 150
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