Practice 2016-FRR Exam Online

Question 1

Which one of the following four statements about preferred shares is INCORRECT?

A : Preferred shares refer to a class of securities that is a cross between equity and debt.

B :

Preferred shares represent residual of a corporation after its other liabilities have been

paid.

C : Preferred shares are subordinated to debt.

D : Preferred shares can be perpetual or have maturities far exceeding debt maturities.

Answer: B

Question 2

BetaFin, a financial services firm, does not have retail branches, but has fixed income,

equity, and asset management divisions. Which one of the four following risk and control

self-assessment (RCSA) methods fits the firm's operational risk framework the best?

A : RCSA questionnaire approach

B : RCSA workshop approach

C : RCSA loss data approach

D : RCSA scenario analysis approach

Answer: B

Question 3

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 may happen to the Delta's initial credit parameter and the value of its loan if the machinery industry experiences adverse structural changes?

A : Probability of default and loss at default may decrease simultaneously, while duration rises causing the loan value to decrease.

B : Probability of default and loss at default may decrease simultaneously, while duration falls causing the loan value to decrease.

C : Probability of default and loss at default may increase simultaneously, while duration rises causing the loan value to decrease.

D : Probability of default and loss at default may increase simultaneously, while duration falls causing the loan value to decrease.

Answer: D

Question 4

Changes to which one of the following four factors would typically not increase the cost of credit?

A : Increasing inflation rates in a country.

B : Increase in consumption of goods and services

C : Higher risk premium on a fixed income instrument.

D : Higher return earned on alternative investments.

Answer: C

Question 5

Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a foreign exchange option?

A : Underlying exchange rates

B : Underlying interest rates

C : Discrete future stock prices

D : Option exercise price

Answer: C

Name:	Financial Risk and Regulation (FRR) Series
Exam Code:	2016-FRR
Certification:	GARP Certification
Vendor:	GARP
Total Questions:	345
Last Updated:	Apr 22, 2024

GARP 2016-FRR