Steps Necessary To Pass The 2016-FRR Exam from Training Expert Pass4Leader
Valid Way To Pass Financial Risk and Regulation's 2016-FRR Exam
NEW QUESTION 118
Which one of the following four regulatory drivers for operational risk management includes risk and control
requirements for financial statements in the United States?
- A. Solvency II
- B. Basel II Accord
- C. The Sarbanes-Oxley Act
- D. The Markets in Financial Instruments Directive
Answer: C
NEW QUESTION 119
US-based BetaBank have accumulated Japanese yen, Japanese government bonds, options on Japanese yen,
and positions in commodities that have a positive correlation with yen. Which one of the four following
non-statistical risk measures could be used to evaluate the BetaBank's exposure to the Japanese economy?
- A. Position concentrations
- B. Position volatility
- C. Position turnover
- D. Position sensitivities
Answer: A
NEW QUESTION 120
An options trader is assessing the aggregate risk of her currency options exposures. As an options buyer, she
can potentially ___ lose more than the premium originally paid. As an option seller, however, she has a ___
risk on the contract and always receives a premium.
- A. Sometimes, unlimited
- B. Never, unlimited
- C. Sometimes, limited
- D. Never, limited
Answer: B
NEW QUESTION 121
Which one of the following four alternatives correctly identifies the purpose of a clearinghouse in trading
activities?
- A. Reduction of counterparty risk and liquidity risk
- B. Reduction of market risk and credit risk
- C. Reduction of operational risk and credit risk
- D. Reduction of basis risk and mark-to-market risk
Answer: A
NEW QUESTION 122
Which of the following attributes of duration gap model typically cause criticism?
I. Basis risk
II. Errors in the linear model
III. Costs of immunization
IV. Constant nature of calculation
- A. I, III, IV
- B. I, II, III
- C. II, III, IV
- D. I, II
Answer: B
NEW QUESTION 123
Mega Bank has $100 million in deposits on which it pays 3% interest, and $20 million in equity on which it
pays no interest. The loan portfolio of $120 million earns an average rate of 10%. If the rates remain the same
and Mega Bank is able to earn the same net interest income in perpetuity at a 5% discount rate, what will the
present value of this holding be?
- A. $200 million
- B. $150 million
- C. $100 million
- D. $180 million
Answer: D
NEW QUESTION 124
The main building blocks of an operational risk framework include all of the following options EXCEPT:
- A. Loss data collection
- B. Risk and control self-assessment
- C. Scenario analysis
- D. Compliance document preparation
Answer: D
NEW QUESTION 125
Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a
foreign exchange option?
- A. Option exercise price
- B. Underlying exchange rates
- C. Underlying interest rates
- D. Discrete future stock prices
Answer: D
NEW QUESTION 126
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; performance risk
- D. Credit risk; market risk
Answer: A
NEW QUESTION 127
John owns a bond portfolio worth $2 million with duration of 10. What positions must he take to hedge this
portfolio against a small parallel shifts in the term structure.
- A. Short position worth $20 million with duration of 1.
- B. Short position worth $2 million with duration of 10.
- C. Long position worth $2 million with duration of 10.
- D. Long position worth $20 million with duration of 1.
Answer: B
NEW QUESTION 128
10 basis points are equal to:
- A. 0.1%
- B. 0.01%
- C. 1%
- D. 10%
Answer: A
NEW QUESTION 129
Gamma Bank has a significant number of retail customers and finds its balance sheet shape and structure
difficult to manage. Which one of the following characteristics of a bank with wide retail operations is
INCORRECT?
- A. Attracting and retaining customers often involves offering retail products whose features are different
from wholesale market products. - B. Banks with a wide retail base are typically driven by contractual obligations and not simply relationship
considerations. - C. The way retail customers behave in relation to the retail banking products they hold often results in the
apparent contractual obligation of the parties providing a poor description of the actual nature of the
obligations. - D. Pricing of retail products often has more to do with marketing considerations rather than prevailing
market price.
Answer: B
NEW QUESTION 130
James Johnson bought a coupon bond yielding 4.7% for $1,000. Assuming that the price drops to $976 when
yield increases to 4.71%, what is the PVBP of the bond.
- A. $976.
- B. $26.
- C. $870.
- D. $76.
Answer: B
NEW QUESTION 131
Which of the following statements represents a methodological difference between variance-covariance and
full revaluation methods?
- A. Variance-covariance approach uses only historic data to compute the covariance matrix.
- B. Variance-covariance approach provides computational advantages over the full revaluation approach.
- C. Variance-covariance approach prices positions more accurately than the full revaluation approach.
- D. Variance-covariance approach computes the VAR for each position separately, while the full revaluation
method computes the VAR on a portfolio basis.
Answer: B
NEW QUESTION 132
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; increase;
- C. Decreases; reduction;
- D. Increases; increase;
Answer: A
NEW QUESTION 133
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 134
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. The decrease in the TED spread indicates an increase in credit risk on interbank loans.
- C. Increase in credit risk on T-bills.
- D. Increase in interest rates on both interbank loans and T-bills.
Answer: A
NEW QUESTION 135
The exercise for an American type option prior to expiration day is virtually certain in the following case:
- A. In the event of a low dividend for an in-the-money put option
- B. In the event of a low dividend for an in-the-money call option
- C. In the event of a high dividend for an in-the-money put option
- D. In the event of a high dividend for an in-the-money call option
Answer: D
NEW QUESTION 136
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