RELIABLE GARP 2016-FRR TEST CRAM, 2016-FRR PASS4SURE DUMPS PDF

Reliable GARP 2016-FRR Test Cram, 2016-FRR Pass4sure Dumps Pdf

Reliable GARP 2016-FRR Test Cram, 2016-FRR Pass4sure Dumps Pdf

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Tags: Reliable 2016-FRR Test Cram, 2016-FRR Pass4sure Dumps Pdf, 2016-FRR Test Quiz, Exam 2016-FRR Bible, Exam 2016-FRR Objectives

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GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q362-Q367):

NEW QUESTION # 362
When a credit risk manager analyzes default patterns in a specific neighborhood, she finds that defaults are increasing as the stigma of default evaporates, and more borrowers default. This phenomenon constitutes

  • A. Moral hazard
  • B. Speculative bias
  • C. Adverse selection
  • D. Herd behavior

Answer: D

Explanation:
* Herd behavior in the context of credit defaults refers to a situation where the stigma of default decreases, leading more borrowers to default as they see others doing the same. This creates a pattern of increasing defaults in the neighborhood as more borrowers follow the trend.
References:
* How Finance Works: "Defaults increasing as the stigma evaporates and more borrowers follow suit is indicative of herd behavior."


NEW QUESTION # 363
A credit analyst wants to determine a good pricing strategy to compensate for credit decisions that might have been made incorrectly. When analyzing her credit portfolio, the analyst focuses on the spreads in each loan to determine if they are sufficient to compensate the bank for all of the following costs and risks EXCEPT.

  • A. The marginal cost of funds provided.
  • B. The overhead cost of maintaining the loan and the account.
  • C. The opportunity cost of risk-adjusted marginal cost of capital.
  • D. The inherent risk of lending to this borrower while providing a return on the risk capital used to the support the loan.

Answer: C

Explanation:
When a credit analyst evaluates spreads in loans, they focus on compensating for costs such as the marginal cost of funds provided, overhead costs of maintaining the loan, and inherent risks of lending to the borrower.
However, the opportunity cost of the risk-adjusted marginal cost of capital is not typically considered directly in the spreads. The opportunity cost generally refers to the potential returns from alternative investments, which isn't a direct component of loan spread calculations.


NEW QUESTION # 364
In the United States, during the second quarter of 2009, transactions in foreign exchange derivative contracts
comprised approximately what proportion of all types of derivative transactions between financial institutions?

  • A. 7%
  • B. 2%
  • C. 25%
  • D. 43%

Answer: A


NEW QUESTION # 365
Gamma Bank has $300 million in loans and $200 million in deposits. If the modified duration of the loans is
estimated to be 2, and the modified duration of the deposits is estimated to be 1, then the change in Gamma
Bank's equity value per 1% change in yield will be:

  • A. -$3 million
  • B. -$1 million
  • C. -$2 million
  • D. -$4 million

Answer: D


NEW QUESTION # 366
Which of the following statements explains how securitization makes retail assets highly liquid and the balance sheet easier to manage?
I. The bank can raise capital by selling the securitized bonds.
II. Any need to diversify credit risk can be achieved by selling the bank's own securitized bonds and buying other bonds that increase diversification.
III. The value of the securitization is linked to the credit rating of the bank and hence is easy to include in medium-term financial plans.
IV. Securitizations can be used to hedge credit risk by using limited market instruments.

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

Answer: B

Explanation:
Comprehensive and Detailed In-Depth Explanation:
Securitization transforms illiquid retail assets (e.g., mortgages) into tradable securities, enhancing liquidity and balance sheet flexibility:
* I:Selling securitized bonds raises capital, reducing reliance on deposits and freeing up the balance sheet (correct).
* II:Selling these bonds and buying others diversifies credit risk, improving portfolio management (correct).
* III:The value of securitization depends on the underlying assets' credit quality, not the bank's rating, making this statement incorrect.
Reference:GARP FRR Study Notes, Credit Risk Section; BCBS, "Basel III: The Liquidity Coverage Ratio," January 2013, para. 50-55.


NEW QUESTION # 367
......

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