2016-FRR Test Objectives Pdf - New 2016-FRR Exam Notes
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GARP 2016-FRR (Financial Risk and Regulation) series exam is a highly specialized certification exam designed for financial risk management professionals. 2016-FRR exam is administered by the Global Association of Risk Professionals (GARP) and is recognized worldwide as a benchmark for risk management professionals. The GARP 2016-FRR Exam covers a wide range of topics, including financial risk management, regulatory compliance, and governance.
GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q99-Q104):
NEW QUESTION # 99
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?
Answer: D
Explanation:
To determine the VaR for the fully leveraged position, we need to understand how leverage affects VaR.
Leverage magnifies both returns and risks, which means that the VaR for a leveraged position is greater than that of an unleveraged position.
* Calculate the leverage ratio:
* In a repurchase transaction with a 20% haircut, 20% of the asset's value must be provided as collateral, meaning 80% can be borrowed.
* Leverage ratio LLL = 1Haircutrac{1}{ ext{Haircut}}Haircut1 = 10.2rac{1}{0.2}0.21 = 5.
* Calculate the leveraged position:
* If the initial unleveraged position is $100, then the leveraged position is $100 imes 5 = $500.
* Calculate the VaR for the leveraged position:
* The unleveraged VaR is $30 on $100.
* Therefore, the leveraged VaR will be magnified by the leverage ratio:
Leveraged VaR=Unleveraged VaR×Leverage Ratio ext{Leveraged VaR} = ext{Unleveraged VaR} imes ext{Leverage Ratio}Leveraged VaR=Unleveraged VaR×Leverage Ratio = $30
imes 5 = $150.
ReferencesSource: How Finance Works
NEW QUESTION # 100
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.
Answer: A
Explanation:
When Delta Bank sells off the lower-risk portions of its credit portfolio, it retains the higher-risk residual pieces. This process inherently increases the risk associated with the remaining portfolio because the lower- risk assets, which provided a cushion, are no longer part of the portfolio. As the risk increases, the potential return on these higher-risk assets also increases to compensate for the additional risk taken on by the bank.
Consequently, this higher risk and potential return increase the bank's return on equity (ROE), as the bank is now leveraging more volatile assets that have higher potential returns.
References
* Verified information on risk and return from the document
NEW QUESTION # 101
A risk manager has a long forward position of USD 1 million but the option portfolio decreases JPY 0.50 for every JPY 1 increase in his forward position. At first approximation, what is the overall result of the options positions?
Answer: D
Explanation:
The risk manager has a long forward position of USD 1 million. The options portfolio decreases by JPY 0.50 for every JPY 1 increase in the forward position. This indicates that the options provide a hedge that is half the size of the forward position because a JPY 1 increase in the forward position is offset by only JPY 0.50 from the options. Thus, the options positions hedge the forward position by 50%.
NEW QUESTION # 102
What is the role of market risk management function within a bank?
I. Control and minimize the risks the bank should take.
II. Establish a comprehensive market risk policy framework.
III. Define, approve and monitor risk limits.
IV. Perform stress tests and other qualitative risk assessments.
Answer: C
NEW QUESTION # 103
To estimate the responsiveness of a particular equity portfolio to the overall market, a trader should use the
portfolio's
Answer: A
NEW QUESTION # 104
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