2016-FRR Exam Dumps - PDF Questions and Testing Engine
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NEW QUESTION 20
Bank Sigma takes a long position in the oil futures market that requires a 2% margin, i.e., the bank has to
deposit 2% of the value of the contract with the broker. The futures contracts were priced at $50 per barrel
(bbl) at inception, and rose by $5 to $55. The VaR on the position is estimated to be $10. What is the return on
this transaction on a risk adjusted basis?
- A. 50%
- B. 20%
- C. 500%
- D. 10%
Answer: A
NEW QUESTION 21
Which one of the following four statements regarding counterparty credit risk is INCORRECT?
- A. The exposure at default is variable due to fluctuations in swap valuations.
- B. Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its
default. - C. Dynamic collateral provisions often increase counterparty risk considerably.
- D. The exposure at default can be negatively correlated to probability of default.
Answer: A
NEW QUESTION 22
Which of the following statements about implementation of a successful RCSA program is correct?
- A. Internal loss data help to identify the risks and control weaknesses that need to be addressed in the
RCSA; external events are not helpful in informing the discussions around potential risks. - B. The RCSA scoring methodology should include only financial impacts and not include reputational,
legal, regulatory, client and life safety impacts. - C. To ensure that the RCSA is well designed, it is important to interview participants, stakeholders and
support functions prior to the launching the RCSA. - D. An RCSA is only complete after all possible mitigating actions have been identified and analyzed as a
result of the assessment process.
Answer: C
NEW QUESTION 23
Which one of the following four statements about economic capital of a bank is correct?
- A. Economic capital is determined by rules imposed by an external authority.
- B. Economic capital reflects the possible losses that could occur based on the bank's own estimates of the
risks it is taking. - C. Economic capital measures how the economy is doing compared to the bank.
- D. Economic capital is the present value of the earnings generated by the bank in the future.
Answer: B
NEW QUESTION 24
Samuel Teng owns a portfolio of bonds and is trying to compute the convexity of his portfolio. Which of the
following choices equals the convexity of Samuel's portfolio?
- A. Value-weighted average convexity of the component bonds
- B. Coupon-weighted average convexity of the component bonds
- C. Minimum of the convexities of the component bonds
- D. Maximum of the convexities of the component bonds
Answer: A
NEW QUESTION 25
According to the largest global poll of foreign exchange market participants, which one of the following four
global financial institutions was the most active participant in the global foreign exchange market?
- A. Citibank
- B. Deutsche Bank
- C. UBS AG
- D. Barclays Capital
Answer: B
NEW QUESTION 26
Which one of the following four statements on the seniority of corporate bonds is incorrect?
- A. Seniority refers to the priority of a bond in bankruptcy.
- B. In bankruptcy, holders of senior bonds are paid in full before any holders of subordinated bonds receive
payment. - C. Senior bonds typically have lower credit spreads than junior bonds with the same maturity and payment
characteristics. - D. Junior bonds always pay higher coupons than subordinated bonds.
Answer: D
NEW QUESTION 27
Which one of the following four statements about the relationship between exchange rates and option values is
correct?
- A. As the dollar appreciates relative to the pound, the right to sell dollars at a fixed pound exchange rate
increases. - B. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases. - C. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
decreases. - D. As the dollar depreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases.
Answer: B
NEW QUESTION 28
Which of the following attributes are typical for early models of statistical credit analysis?
- A. The underlying default assumptions were analytically inconvenient.
- B. These models effectively incorporated herd behavior.
- C. The underlying default assumptions failed to develop relatively simple formulas for the determination of
portfolio credit risk. - D. These models assumed the default of any obligor was independent of the default of any other.
Answer: D
NEW QUESTION 29
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). 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
expected loss be? What is the expected loss of this loan?
- A. $1,050
- B. $550
- C. $750
- D. $300
Answer: A
NEW QUESTION 30
If a bank is long £500 million pounds, short £300 million in delta-equivalent pound options, and long £100
million in pound-denominated stocks, what is the amount of pound exposure that would be shown in the
aggregated risk reports?
- A. £900 million pounds
- B. £300 million pounds
- C. £500 million pounds
- D. £800 million pounds
Answer: B
NEW QUESTION 31
A bank has a Var estimate of $100 million. It is considering a new transaction which has a correlation of 0.35
with the current portfolio and a standalone VaR estimate of $5 million. What would be the new VaR for the
bank if it carried out the transaction?
- A. $100.22 million
- B. $101.86 million
- C. $105 million
- D. $ 213.67 million
Answer: B
NEW QUESTION 32
Typically, which one of the following four option risk measures will be used to determine the number of
options to use to hedge the underlying position?
- A. Rho
- B. Theta
- C. Delta
- D. Vega
Answer: C
NEW QUESTION 33
To hedge equity exposure without buying or selling shares of stock or otherwise rebalancing the portfolio, a
risk manager could initiate
- A. A long total return swap position.
- B. A long debt-for-equity swap.
- C. A short debt-for-equity swap.
- D. A short total return swap position.
Answer: D
NEW QUESTION 34
A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations. If these CDOs can
be used in a repo transaction at a 20% haircut, what is the maximum leverage factor for a transaction with the
CDOs?
- A. 1.5
- B. 0
- C. 0.8
- D. 1
Answer: B
NEW QUESTION 35
Oliver McCarthy owns a portfolio of bonds. Which of the following choices equals the modified duration of
Oliver's portfolio?
- A. Minimum of the modified durations of the component bonds
- B. Value-weighted average modified duration of the component bonds
- C. Maximum of the modified durations of component bonds
- D. Coupon-weighted average modified duration of the component bonds
Answer: B
NEW QUESTION 36
Changes to which one of the following four factors would typically not increase the cost of credit?
- A. Higher risk premium on a fixed income instrument.
- B. Increase in consumption of goods and services.
- C. Higher return earned on alternative investments.
- D. Increasing inflation rates in a country.
Answer: A
NEW QUESTION 37
To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a
credit portfolio manager should use the following metric:
- A. Credit VaR
- B. Unexpected loss
- C. Expected loss
- D. Factor sensitivity
Answer: C
NEW QUESTION 38
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. I, II and IV
- B. II and III
- C. II and IV
- D. II, III, and IV
Answer: A
NEW QUESTION 39
If the yield on the 3-month risk free bonds issued by the U.S government is 0.5%, and the 3-month LIBOR
rate is 2.5%, what is the TED spread?
- A. 2.0%
- B. -2.0%
- C. 3.0%
- D. 0.5%
Answer: A
NEW QUESTION 40
Which of the following statements regarding CDO-squared is correct?
I. CDO-squared use other CDOs and CMOs as collateral.
II. Risk assessment of CDO-squared is almost impossible due to their complexity.
III. CDO-squared have lower credit risk than CMOs but higher than CDOs.
- A. I and II
- B. II and III
- C. I only
- D. I, II, and III
Answer: A
NEW QUESTION 41
A multinational bank just bought two bonds each worth $10,000. One of the bonds pays a fixed interest of 5%
semi-annually and the other pays LIBOR semi-annually. The six month LIBOR is at 5% currently. The risk
manager of the bank is concerned about the sensitivity to interest rates. Which of the following statements are
true?
- A. The price of the bond paying fixed interest is more sensitive to interest rates than the bond paying
floating interest. - B. Both bond prices are equally sensitive to interest rates.
- C. The price of the bond paying floating interest is more sensitive to interest rates than the bond paying
fixed interest. - D. The given information is not enough to determine the sensitivity of the bond prices.
Answer: A
NEW QUESTION 42
What are the add-on losses faced by a bank that is going bankrupt?
I. The discount accepted by the bank for selling its assets in a fire sale.
II. The increased cost of funding liabilities in a financially distressed situation.
III. The reduction in the present value of future growth opportunities.
IV. Loss of goodwill and intangible assets.
- A. I, II, III, IV.
- B. III, IV
- C. II, III, IV
- D. I, II
Answer: A
NEW QUESTION 43
Which one of the following four statements correctly identifies the Basel II Accord's definition of operational
risk?
- A. Operational risk is a risk arising from execution of a company's business functions.
- B. Operational risk is the risk of loss resulting from inadequate or failed processes, people and systems or
from external events. - C. Operational risk is all the risk that is not captured by market and credit risks.
- D. Operational risk is a form of risk that summarizes the risks a company or firm undertakes when it
attempts to operate within a given field or industry.
Answer: B
NEW QUESTION 44
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 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. - C. 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. - 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: C
NEW QUESTION 45
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