2021 2016-FRR dumps review - Professional Quiz Study Materials
2016-FRR Test Prep Training Practice Exam Questions Practice Tests
NEW QUESTION 57
A credit portfolio manager analyzes a large retail credit portfolio. Which of the following factors will represent
typical disadvantages of market-linked credit risk drivers?
I. Need to supply a large number of input parameters to the model
II. Slow computation speed due to higher simulation complexity
III. Non-linear nature of the model applicable to a specific type of credit portfolios
IV. Need to estimate a large number of unknown variable and use approximations
- A. I
- B. III, IV
- C. I, II
- D. II, III
Answer: C
NEW QUESTION 58
Which of the following attributes are typical for early models of statistical credit analysis?
- A. The underlying default assumptions were analytically inconvenient.
- B. These models effectively incorporated herd behavior.
- C. The underlying default assumptions failed to develop relatively simple formulas for the determination of
portfolio credit risk. - D. These models assumed the default of any obligor was independent of the default of any other.
Answer: D
NEW QUESTION 59
A bank considers issuing new capital to increase its Tier 1 capital levels. Which of the following financial
instruments would most likely to be considered?
- A. Convertible preferred shares
- B. Short-term callable debt
- C. Long-term and callable debt convertible to equity
- D. Short-term debt convertible to non-cumulative preferred shares
Answer: A
NEW QUESTION 60
When operating in a heavily traded currency, a commercial and retail bank's treasury is likely to focus on
cover operations. Which one of the following four commercial and retails treasury's operations is known as a
cover operation?
- A. Ensuring that the risks generated by the bank's business are mitigated in the market.
- B. Effectively transferring the interest rate risk in the banking book to the investment bank at a fair transfer
price. - C. Mitigating liquidity risk, or effectively managing the balance sheet and its funding.
- D. Managing the net interest rate risk in the banking book directly with market counterparties by operating
a derivatives trading desk.
Answer: A
NEW QUESTION 61
Bank G has a 1-year VaR of USD 20 million at 99% confidence level while bank H has a 1-year VaR of USD
10 million at the same confidence level. Which bank is in a more risky position as measured by VaR?
- A. Both banks are equally risky since the measurements are with the same confidence level.
- B. Since the confidence levels are the same we cannot make any conclusions.
- C. Bank H is taking twice the risk of bank G as measured by VaR.
- D. Bank G is taking twice the risk of bank H as measured by VaR.
Answer: D
NEW QUESTION 62
Since most consumers of natural gas do not have the ability to store it, they contract with gas suppliers to
receive a flow of natural gas equal to a specific number of MMBT's per day (MMBT is millions of British
Termal Units, the unit in which gas futures are quoted on the U.S. markets). To protect against price increases
with a bank, the natural gas consumer, concerned with the average price over the course of the month, will use
the following contracts:
- A. Compound options
- B. Flexible volume options
- C. Asian options
- D. American options
Answer: C
NEW QUESTION 63
In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the
entire trading day. Which of the following factors would most likely affect foreign exchange option values?
I. Change in the value of the underlying
II. Change in the perception of future volatility
III. Change in interest rates
IV. Passage of time
- A. I, II, III
- B. I, II, III, IV
- C. II, III
- D. I, II
Answer: B
NEW QUESTION 64
Short-selling is typically associated with the following risks:
I. Potential for extreme losses
II. Risk associated with the availability of shares to borrow
III. Market behavior risk
IV. Liquidity risk
- A. II, IV
- B. I, III
- C. I, II, III, IV
- D. I, II
Answer: C
NEW QUESTION 65
A risk analyst at EtaBank wants to estimate the risk exposure in a leveraged position in Collateralized Debt
Obligations. These particular CDOs can be used in a repurchase transaction at a 20% haircut. If the VaR on a
$100 unleveraged position is estimated to be $30, what is the VaR for the final, fully leveraged position?
- A. $150
- B. $20
- C. $100
- D. $50
Answer: A
NEW QUESTION 66
A portfolio consists of two floating rate bonds and one fixed rate bond.
Based on the information below, modified duration of this portfolio is
- A. 4.44
- B. 2.64
- C. 3.00
- D. 4.28
Answer: B
NEW QUESTION 67
Which one of the following four statements about regulatory capital for a bank is accurate?
- A. Regulatory capital is the lowest level of economic capital the bank should have to meet regulatory
requirement. - B. Regulatory capital is determined by rules imposed by an outside authority, such as a supervisor or
central bank. - C. Regulatory capital is less than the regulatory capital requirement.
- D. Regulatory capital reflects the economic tradeoffs of the bank as accurately as the bank can represent
them.
Answer: B
NEW QUESTION 68
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 69
Which one of the following four statements represents a possible disadvantage of using total return swap to
manage equity portfolio risks?
- A. The total return receiver does not have any voting rights.
- B. The total return receiver needs to incur the transaction costs of establishing an equity position.
- C. Similar to the formal portfolio rebalancing strategy, the total return receiver needs to modify the size of
the trading position. - D. Similar to an equity forward position, the total return receiver does not get paid the dividend.
Answer: A
NEW QUESTION 70
Which of the following statements regarding CDO-squared is correct?
I. CDO-squared use other CDOs and CMOs as collateral.
II. Risk assessment of CDO-squared is almost impossible due to their complexity.
III. CDO-squared have lower credit risk than CMOs but higher than CDOs.
- A. I and II
- B. II and III
- C. I only
- D. I, II, and III
Answer: A
NEW QUESTION 71
For two variables, which of the following is equal to the average product of the deviations from their
respective means?
- A. Correlation
- B. Standard deviation
- C. Kurtosis
- D. Covariance
Answer: D
NEW QUESTION 72
Except for the credit quality of the Credit Default Swap protection seller, the following relationship correctly
approximates the yield on a risk-free instrument:
- A. Bond + CDS
- B. Bond + CDS + Market Spread
- C. Bond - CDS - Market spread
- D. Bond - CDS
Answer: A
NEW QUESTION 73
To estimate the interest charges on the loan, an analyst should use one of the following four formulas:
- A. Loan interest = Risk-free rate - Probability of default x Loss given default + Spread
- B. Loan interest = Risk-free rate - Probability of default x Loss given default - Spread
- C. Loan interest = Risk-free rate + Probability of default x Loss given default - Spread
- D. Loan interest = Risk-free rate + Probability of default x Loss given default + Spread
Answer: D
NEW QUESTION 74
Which one of the following four statements on factors affecting the value of options is correct?
- A. As the value of underlying security increases, the value of the put option increases.
- B. As time passes, options will increase in value.
- C. As volatility rises, options increase in value.
- D. As interest rates rise and option's rho is positive, option prices will decrease.
Answer: C
NEW QUESTION 75
A trader inadvertently booked a trade with incorrect information. A subsequent market move resulted in a gain
to the bank. Should the bank include this amount of gain into its operational loss event data program?
I. The bank should include this gain in its operational loss event data program as a gain realized due to
operational risk events.
II. The bank should include this gain in its operational loss event data program as it indicates that a control
failed or a process is flawed.
III. The bank should include this event in its operational loss event data program and record the gain as a loss
resulting from operational risk.The bank should not include this event in its operational loss event data
program as it is not a loss event, but a market risk event.
- A. I and II
- B. II and III
- C. I and III
- D. I, II and III
Answer: A
NEW QUESTION 76
According to the largest global poll of foreign exchange market participants, which one of the following four
global financial institutions was the most active participant in the global foreign exchange market?
- A. Citibank
- B. Deutsche Bank
- C. UBS AG
- D. Barclays Capital
Answer: B
NEW QUESTION 77
In hedging transactions, derivatives typically have the following advantages over cash instruments:
I. Lower credit risk
II. Lower funding requirements
III. Lower dealing costs
IV. Lower capital charges
- A. II, IV
- B. I, III
- C. I, II, III, IV
- D. I, II
Answer: C
NEW QUESTION 78
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 79
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