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The Global Association of Risk Professionals (GARP) is a not-for-profit organization that offers various certification programs to professionals in the field of risk management. One of their most popular certifications is the Financial Risk and Regulation (FRR) Series Certification. Financial Risk and Regulation (FRR) Series certification program is designed to help individuals understand and manage financial risks in today's complex and constantly changing financial environment.
The FRR Series exam is available to individuals who have a minimum of two years of professional experience in risk management, regulation, or a related field. 2016-FRR Exam is divided into two parts, with the first part covering foundations of risk management and the second part focusing on regulatory compliance. 2016-FRR exam is computer-based and consists of multiple-choice questions. Candidates are given four hours to complete each part of the exam. Upon successful completion of the exam, candidates are awarded the FRR Series Certification, which is recognized globally as a mark of excellence in financial risk management and regulatory compliance.
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- In India: ₹ 100,000 - 200,000.
- In Singapore: S 80,000 - 130,000.
- In the United Kingdom: £55,000 - £75,000.
- In Australia: AU 110,000 - 155,000.
- In the United States: $80,000 - 130,000.
GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q159-Q164):NEW QUESTION # 159
Alpha Bank estimates its 1-month, 95% VaR is 30 million EUR. This means that in the next month, there is a
- A. 95% chance that AlphaBank will at least lose 30 million EUR.
- B. 95% chance that AlphaBank can lose at most 30 million EUR.
- C. 95% chance that AlphaBank can lose more than 30 million EUR.
- D. 95% chance that AlphaBank will lose exactly 30 million EUR.
Answer: B
Explanation:
Value at Risk (VaR) at a 95% confidence level indicates that there is a 95% probability that the loss will not exceed the specified amount (30 million EUR) over a given period (1 month in this case). Conversely, there is a 5% chance that the loss could exceed this amount.
References:
* Explanation from standard VaR concepts and financial risk management practices.
NEW QUESTION # 160
Which one of the following four relationships should be used to price equity forwards or futures?
- A. Equity forward or futures price = market equity price + (1 + risk-free rate - expected dividend rate)t
- B. Equity forward or futures price = market equity price x (1 - risk-free rate - expected dividend rate)t
- C. Equity forward or futures price = market equity price x (1 + risk-free rate - expected dividend rate)t
- D. Equity forward or futures price = market equity price + (1 + risk-free rate + expected dividend rate)t
Answer: C
Explanation:
The correct formula for pricing equity forwards or futures involves the market equity price adjusted by the cost of carry, which includes the risk-free rate and the expected dividend rate. The formula is:
Equity forward or futures price=market equity price×(1+risk-free rateexpected dividend rate)Equity forward or f t
* Market Equity Price: This is the current price of the equity in the market.
* Risk-Free Rate: This represents the return on an investment with no risk, typically the yield on government bonds.
* Expected Dividend Rate: This is the rate at which dividends are expected to be paid out, expressed as a percentage of the market price.
* Time (t): This is the time to maturity of the forward or futures contract, usually expressed in years.
The formula accounts for the cost of financing the equity position (risk-free rate) and adjusts for the income from the equity (expected dividends). The multiplication and exponentiation reflect the compounding effect over the period t.
References
* How Finance Works.pdf, p. 206
NEW QUESTION # 161
In additional to the commodity-specific risks, which of the following risks represent the main commodity derivative risks?
I. Basis
II. Term
III. Correlation
IV. Seasonality
- A. I, II
- B. I, IV
- C. I, II, III, IV
- D. II, III
Answer: C
Explanation:
Commodity derivative risks encompass a variety of factors, and among the main risks are:
* Basis Risk:This arises from the difference between the spot price of the commodity and the futures price of the commodity.
* Term Risk:This refers to the risk associated with the time to maturity of the derivative contract.
* Correlation Risk:This involves the risk that the price of the commodity does not move in correlation with the derivative being used to hedge.
* Seasonality Risk:This arises from the predictable fluctuations in commodity prices due to seasonal patterns.
All these risks are essential in understanding the complete risk profile associated with commodity derivatives.
References
Information verified based on the financial risk and regulation context provided in the book "How Finance Works".
NEW QUESTION # 162
Which one of the four following statements about the Risk Adjusted Return on Capital (RAROC) is correct?
RAROC is the ratio of:
- A. Risk to the profitability of a trading portfolio or a business unit within the bank.
- B. Profitability to the expected return of a trading portfolio or bank business unit.
- C. Profitability to the risk of a trading portfolio or bank business unit.
- D. Value-at-risk to the profitability of a trading portfolio or a business unit.
Answer: C
Explanation:
Risk Adjusted Return on Capital (RAROC) is the ratio of profitability to the risk of a trading portfolio or bank business unit. This measure helps in assessing how much return is generated per unit of risk, allowing banks to compare the performance of different business units and investment opportunities on a risk-adjusted basis.
NEW QUESTION # 163
A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While
this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell
order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss
than if the market had remained stable. However, if the market drops, the customer will benefit from the
incorrect accounting and gain from this trade. This trading scenario can serve as an example that
- A. Liquidity risk in this transaction can magnify operational risk.
- B. Credit risk in this transaction can magnify operational risk.
- C. Market risk in this transaction can magnify operational risk.
- D. Strategic risk in this transaction can magnify operational risk.
Answer: C
NEW QUESTION # 164
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