2016-FRR Online Practice Questions and Answers
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. Duration of default
C. Loss given default
D. Exposure at default
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
B.
I, II, III
C.
II, III
D.
I, II, III, IV
An asset manager for a large mutual fund is considering forward exchange positions traded in a clearinghouse system and needs to mitigate the risks created as a result of this operation. Which of the following risks will be created as a result of the forward exchange transaction?
A. Exchange rate risk
B. Exchange rate and interest rate risk
C. Credit risk
D. Exchange rate and credit risk
As Japan ___ its budget deficits and ___ its dependence on debt, the Japanese currency, JPY, would ___ in value against other currencies.
A. Reduces, reduces, appreciate
B. Reduces, reduces, depreciate
C. Increases, reduces, appreciate
D. Reduces, increases, depreciate
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, III
B.
II, III, IV
C.
I, II, IV
D.
I, II, III, IV
What does correlation between two variables measure?
A. Symmetry of a joint distribution of the two variables.
B. Association between the two variables and the strength of a possible statistical relationship.
C. The proportion of variability in one of the variables that is explained by the other.
D. Extreme returns of both variables.
Which of the following bank events could stress the bank's liquidity position?
I. Maturing of bank debt
II. Repurchase agreements
III. Futures margins
IV.
Staff turnover
A.
I, II
B.
IV
C.
III, IV
D.
I, II and III
The retail banking business of BankGamma has an expected P and L of $50 million and a VaR of $100 million. The bank seeks to diversify its revenue, and is considering the opportunity to acquire a credit card business with an expected P and L of $50 million and a VaR of $150 million. What will be the overall RAROC if the bank acquires the new business?
A. 33.3%.
B. 50%.
C. 58%.
D. 72%.
As an example of the balance sheet effect, if rates rise, Delta Bank can expect:
A. Its fixed rate assets to increase in value, although that effect will be offset by a reduction in the value of its fixed rate liabilities.
B. Its fixed rate assets to drop in value, although that effect will be offset by a reduction in the value of its fixed rate liabilities.
C. Its fixed rate assets to increase in value, while that effect will be amplified by a reduction in the value of its fixed rate liabilities.
D. Its fixed rate assets to drop in value, while that effect will be amplified by a reduction in the value of its fixed rate liabilities.