LATEST 2016-FRR EXAM EXPERIENCE - VALID EXAM 2016-FRR BOOK

Latest 2016-FRR Exam Experience - Valid Exam 2016-FRR Book

Latest 2016-FRR Exam Experience - Valid Exam 2016-FRR Book

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Tags: Latest 2016-FRR Exam Experience, Valid Exam 2016-FRR Book, 2016-FRR Valid Test Voucher, 2016-FRR Reliable Exam Testking, Real 2016-FRR Torrent

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GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q269-Q274):

NEW QUESTION # 269
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 long USD 5 million.
  • C. His overall portfolio has the same exposure to USD as a portfolio that is short USD 10 million.
  • D. His overall portfolio has the same exposure to USD as a portfolio that is long USD 10 million.

Answer: C

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 # 270
Bank Omega is using futures contracts on a well capitalized exchange to hedge its market risk exposure.
Which of the following could be reasons that expose the bank to liquidity risk?
I. The bank may not be able to unwind the futures contracts before expiration.
II. Prices may move such that a loss results on the hedge.
III. Since futures require margins which are settled every day, the bank could find itself scrambling for funds.
IV. Exchange margin requirements could change unexpectedly.

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

Answer: C

Explanation:
When a bank uses futures contracts on a well-capitalized exchange to hedge its market risk exposure, it can still be exposed to liquidity risks due to several reasons:
I: The bank may not be able to unwind the futures contracts before expiration: This can happen if there is a lack of market participants willing to take the opposite position, making it difficult to close out the position.
II: Prices may move such that a loss results on the hedge: Although this is a risk related to the performance of the hedge, it is not directly related to liquidity risk but more to market risk.
III: Since futures require margins which are settled every day, the bank could find itself scrambling for funds:
Futures contracts require daily settlement of gains and losses (mark-to-market), which means the bank must have sufficient liquidity to cover margin calls, potentially causing liquidity strain if large movements in the futures prices occur.
IV: Exchange margin requirements could change unexpectedly: If the exchange increases margin requirements, the bank would need to post additional collateral, which could strain its liquidity if it does not have sufficient liquid assets readily available.
References: The verified details are aligned with the context given in "How Finance Works" regarding the liquidity risks associated with futures contracts.


NEW QUESTION # 271
The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential failure
of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed,
the principal and the contractual interest payments, would be called ___.

  • A. Performance risk; credit risk
  • B. Market risk; credit risk
  • C. Credit risk; market risk
  • D. Credit risk; performance risk

Answer: A


NEW QUESTION # 272
Which one of the four following statements regarding minimum loss data standards is not correct?

  • A. The loss data program must comprehensively capture all material activities.
  • B. The loss data entry may include descriptive information about the drivers or causes of the loss event.
  • C. The loss data entry should only include the date when the event was reported.
  • D. The loss data entry must include the actual loss amount.

Answer: C

Explanation:
* Option A: The loss data entry must include the actual loss amount.
* Correct as it ensures accurate financial impact recording.
* Option B: The loss data program must comprehensively capture all material activities.
* Correct, necessary for a thorough risk management program.
* Option C: The loss data entry should only include the date when the event was reported.
* Incorrect, as it is essential to capture both the event date and the report date to understand the timeline of the incident.
* Option D: The loss data entry may include descriptive information about the drivers or causes of the loss event.
* Correct, as it provides context and insights into the root causes, aiding in risk analysis and prevention.


NEW QUESTION # 273
On January 1, 2010 the TED (treasury-euro dollar) spread was 0.9%, and on January 31, 2010 the TED spread
is 0.4%. As a risk manager, how would you interpret this change?

  • A. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.
  • B. Increase in interest rates on both interbank loans and T-bills.
  • C. The decrease in the TED spread indicates an increase in credit risk on interbank loans.
  • D. Increase in credit risk on T-bills.

Answer: A


NEW QUESTION # 274
......

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