ExamsReviews 2016-FRR dumps & Financial Risk and Regulation Sure Practice with 345 Questions
New 2016-FRR Exam Questions| Real 2016-FRR Dumps
NEW QUESTION 128
Which one of the following four options is NOT a typical component of a currency swap?
- A. Denomination of the original notional amount into a foreign currency
- B. A final currency exchange
- C. An initial currency exchange of the notional amount
- D. Periodic exchange of interest payments in different currencies
Answer: A
NEW QUESTION 129
Of all the risk factors in loan pricing, which one of the following four choices is likely to be the least
significant?
- A. Probability of default
- B. Exposure at default
- C. Duration of default
- D. Loss given default
Answer: C
NEW QUESTION 130
Which one of the following four statements regarding commodity exchanges is INCORRECT?
- A. Customers rarely trade physical commodities with banks.
- B. Banks have no natural direct exposure to commodities.
- C. Banks trade in OTC contracts primarily to serve clients and facilitate client hedging and lending.
- D. Commodity markets are mot liquid than debt markets.
Answer: D
NEW QUESTION 131
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, II
- B. III, IV
- C. II, III
- D. I
Answer: A
NEW QUESTION 132
Which one of the four following statements about back testing the VaR models is correct?
Back testing requires
- A. Plotting the daily profit and losses along with the ranges predicted by VaR models
- B. Plotting VaR forecasts against the proportion of daily losses exceeding the average loss.
- C. Determining the proportion of daily profits exceeding those predicted by VaR.
- D. Comparing the predictive ability of VaR on a daily basis to the realized daily profits and losses.
Answer: D
NEW QUESTION 133
To safeguard its capital and obtain insurance if the borrowers cannot repay their loans, Gamma Bank accepts
financial collateral to manage its credit risk and mitigate the effect of the borrowers' defaults. Gamma Bank
will typically accept all of the following instruments as financial collateral EXCEPT?
- A. Commercial debts owed to a company in a form of receivables
- B. Mutual fund shares and similar unit investment vehicles subject to daily quotes
- C. Unrated bonds issued and traded on a recognized exchange
- D. Equities and convertible bonds included in a main market index
Answer: A
NEW QUESTION 134
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. Credit risk in this transaction can magnify operational risk.
- B. Market risk in this transaction can magnify operational risk.
- C. Liquidity risk in this transaction can magnify operational risk.
- D. Strategic risk in this transaction can magnify operational risk.
Answer: B
NEW QUESTION 135
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. II, III
- B. I, IV
- C. I, II, III, IV
- D. I, II
Answer: C
NEW QUESTION 136
When trading exotic options, one needs to consider the following risks:
I. Spot foreign exchange risks
II. Forward foreign exchange risks
III. Plain vanilla options risks
IV. Option-specific risks
- A. I, II, IV
- B. II, III, IV
- C. I, II, III, IV
- D. I, III
Answer: C
NEW QUESTION 137
Which one of the following four statements about the relationship between exchange rates and option values is
correct?
- A. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases. - B. As the dollar appreciates relative to the pound, the right to sell dollars at a fixed pound exchange rate
increases. - C. As the dollar depreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases. - D. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
decreases.
Answer: A
NEW QUESTION 138
Which one of the following four statements about preferred shares is INCORRECT?
- A. Preferred shares can be perpetual or have maturities far exceeding debt maturities.
- B. Preferred shares refer to a class of securities that is a cross between equity and debt.
- C. Preferred shares represent residual of a corporation after its other liabilities have been paid.
- D. Preferred shares are subordinated to debt.
Answer: C
NEW QUESTION 139
After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk
portions of the portfolio credit risk. This process ___ risk on the residual pieces of the credit portfolio, and as a
result it ___ return on equity for the bank.
- A. Increases; decreases;
- B. Decreases; increases;
- C. Decreases; increases;
- D. Increases; increases;
Answer: D
NEW QUESTION 140
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. Flexible volume options
- B. Compound options
- C. Asian options
- D. American options
Answer: C
NEW QUESTION 141
A risk associate evaluating his current portfolio of assets and liabilities wants to determine how sensitive this
portfolio is to changes in interest rates. Which one of the following four metrics is typically used for this
purpose?
- A. Macaulay duration
- B. Modified duration
- C. Duration of default
- D. Effective duration
Answer: B
NEW QUESTION 142
Banks duration match their assets and liabilities to manage their interest risk in their banking book. A bank has
$100 million in interest rate sensitive assets and $100 million in interest rate sensitive liabilities. Currently the
bank's assets have a duration of 5 and its liabilities have a duration of 2. The asset-liability management
committee of the bank is in the process of duration-matching. Which of the following actions would best
match the durations?
- A. Decrease the duration of liabilities by 1 and decrease the duration of assets by 1.
- B. Increase the duration of liabilities by 2 and increase the duration of assets by 1.
- C. Decrease the duration of liabilities by 1 and increase the duration of assets by 1.
- D. Increase the duration of liabilities by 2 and decrease the duration of assets by 1.
Answer: D
NEW QUESTION 143
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