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How GARP 2016-FRR Practice Questions Can Help You in Exam Preparation?

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How GARP 2016-FRR Practice Questions Can Help You in Exam Preparation?

Posted at yesterday 21:02      View：1 | Replies：0        Print      Only Author   [Copy Link] 1#
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The Global Association of Risk Professionals (GARP) offers an exam series known as the Financial Risk and Regulation (FRR) Series. The FRR Series is designed for professionals looking to enhance their knowledge in financial risk management and regulatory compliance. 2016-FRR exam series covers topics such as financial risk management, credit risk, market risk, operational risk, and regulatory compliance.
GARP 2016-FRR exam is divided into two parts: Part I and Part II. Part I covers the fundamental concepts of financial risk and regulation, including risk management, financial markets and institutions, and regulatory compliance. Part II focuses on advanced topics such as market risk, credit risk, operational risk, and risk governance. 2016-FRR Exam is designed to be comprehensive and challenging, ensuring that only the most qualified candidates are awarded certification.
GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q13-Q18):NEW QUESTION # 13
A risk manager is analyzing a call option on the GBP with a vega of 0.02. When the perceived future volatility increases by 1%, the call option
  • A. Increases in value by 0.02.
  • B. Decreases in value by 0.02.
  • C. Decreases in value by 2.
  • D. Increases in value by 2.
Answer: A
Explanation:
Vega represents the sensitivity of an option's price to changes in the volatility of the underlying asset. If a call option on the GBP has a Vega of 0.02, this means that for every 1% increase in the perceived future volatility, the price of the call option will increase by 0.02. Therefore, if the volatility increases by 1%, the call option's value increases by 0.02.

NEW QUESTION # 14
Which of the following are typical properties of a statistical distribution of potential losses that a bank might sustain over a period of time?
I. The range of possible losses above the average loss is much greater than those below the average loss.
II. The loss that is most likely to occur is below the average loss.
III. The loss that is most likely to occur is above the average loss.
  • A. I, III
  • B. I, II
  • C. II
  • D. III
Answer: B
Explanation:
* Property I: The range of possible losses above the average loss is much greater than those below the average loss:
* Statistical distributions of potential losses, especially in financial contexts, often exhibit a right- skewed pattern where extreme losses are more probable than extreme gains. This skewness results in a greater range of possible losses above the average loss.
* Property II: The loss that is most likely to occur is below the average loss:
* In skewed distributions, the mode (most likely value) is often different from the mean. For losses, the most likely (mode) value is typically below the average loss because the average is pulled up by the tail of extreme losses.
* Property III: The loss that is most likely to occur is above the average loss:
* This statement is incorrect for the typical skewed distribution described in financial risk contexts.
The mode is below the mean due to the influence of extreme losses.
References
Source: How Finance Works

NEW QUESTION # 15
A risk manager is considering how to best quantify option price dynamics using mathematical option pricing models. Which of the following variables would most likely serve as an input in these models?
I. Implicit parameter estimate based on observed market prices
II. Estimates of sensitivity of option prices to parameter changes
III. Theoretical option determination based on assumptions
  • A. I, III
  • B. II
  • C. I, II, III
  • D. II, III
Answer: C
Explanation:
Mathematical option pricing models typically use the following variables as inputs:
* I. Implicit parameter estimate based on observed market prices: These are derived from market data to infer parameters such as volatility.
* II. Estimates of sensitivity of option prices to parameter changes: These include Greeks like Delta, Gamma, Theta, etc., which measure the sensitivity of the option's price to various factors.
* III. Theoretical option determination based on assumptions: This involves theoretical calculations based on models like Black-Scholes, which use assumptions about market behavior and asset dynamics.
References:The inputs and methodologies for option pricing models are well-documented in financial literature and can be referenced in the "How Finance Works" document.

NEW QUESTION # 16
Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year
no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate
spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both
interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta
defaults, the bank expects to lose 50% of its promised payment. What interest rate should Alpha Bank charge
on the no-payment loan to Delta Industrial Machinery Corporation?
  • A. 10%
  • B. 8%
  • C. 9%
  • D. 12%
Answer: A

NEW QUESTION # 17
Which of the following reports have been suggested by the FDIC that banks should produce in addition to the
usual probabilistic analysis and stress tests in order to gauge liquidity issues?
I. Cash flow gaps
II. Funding availability
III. Critical assumptions used in credit projections
  • A. I, III
  • B. I
  • C. I, II, III
  • D. I, II
Answer: C

NEW QUESTION # 18
......
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