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GARP FRR Series is a globally recognized certification program that validates individuals' knowledge and expertise in financial risk management and regulatory compliance. The program is designed for professionals who work in banking, insurance, asset management, and the energy industry. The FRR Series consists of two levels of certification, the FRM and the ERP, and passing the exams requires a combination of relevant work experience and a deep understanding of the program's content.
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GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q357-Q362):
NEW QUESTION # 357
Which one of the following four statements correctly identifies the Basel II Accord's definition of operational risk?
Answer: D
Explanation:
The Basel II Accord defines operational risk as the risk of loss resulting from inadequate or failed processes, people, and systems, or from external events. This definition encompasses a wide range of potential risks that banks must manage.
NEW QUESTION # 358
From the bank's point of view, repricing the retail debt portfolio will introduce risks of fluctuations in:
I. Duration
II. Loss given default
III. Interest rates
IV. Bank spreads
Answer: C
Explanation:
From the bank's point of view, repricing the retail debt portfolio introduces risks primarily related to fluctuations in interest rates and bank spreads. When interest rates change, the cost of funds for the bank can fluctuate, which affects the interest margins (bank spreads). Additionally, the repricing of existing debt to match current market rates introduces direct exposure to interest rate volatility. Therefore, the risks associated with fluctuations in these areas are III. Interest rates and IV. Bank spreads.
NEW QUESTION # 359
Gamma Bank is operating in a highly volatile interest rate environment and wants to stabilize its net income
by shifting the sources of its earnings from interest rate sensitive sources to less interest rate sensitive sources.
All of the following strategies can help achieve this objective EXCEPT:
Answer: B
NEW QUESTION # 360
Bank Sigma takes a long position in the oil futures market that requires a 2% margin, i.e., the bank has to deposit 2% of the value of the contract with the broker. The futures contracts were priced at $50 per barrel (bbl) at inception, and rose by $5 to $55. The VaR on the position is estimated to be $10. What is the return on this transaction on a risk adjusted basis?
Answer: A
Explanation:
* Initial Margin Calculation: The bank takes a long position requiring a 2% margin. For futures contracts priced at $50 per barrel, the margin required per barrel is 0.02×50=10.02 imes 50 = 10.02
×50=1 dollar.
* Profit Calculation: The price rises from $50 to $55 per barrel, making a profit of 55#50=555 - 50 =
555#50=5 dollars per barrel.
* Return Calculation:
* Return on Investment (ROI) without considering risk: 51=5rac{5}{1} = 515=5 or 500%.
* Risk-Adjusted Return:
* VaR (Value at Risk) on the position is estimated to be $10.
* Risk-adjusted return formula: ProfitVaR=510=0.5rac{Profit}{VaR} = rac{5}{10} = 0.5 VaRProfit=105=0.5 or 50%.
References
Source: How Finance Works
NEW QUESTION # 361
In early March, an energy trader takes a long position in natural gas futures for delivery in June, and hedges
this exposure by taking a position in futures for July delivery. These trades were executed on the expectation
that over time, the relative prices of the June and July contracts will come into alignment, the movement in
these two contracts will largely mirror each other, and as a result of this, the net exposure is minimized and the
position is protected against absolute price movements. However, if the two relative prices do not come into
alignment with each other due to the scarcity of any of the two traded contracts in the futures market, the
trader is likely to become exposed to the
Answer: C
NEW QUESTION # 362
......
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