[2022] Use Valid 2016-FRR Exam - Actual Exam Question & Answer
Test Engine to Practice 2016-FRR Test Questions
NEW QUESTION 114
Which one of the following four statements does identify correctly the relationship between the value of an
option and perceived exchange rate volatility?
- A. As the perceived future foreign exchange volatility increases, the value of all options increases.
- B. With increases in perceived future foreign exchange volatility, the value of all foreign exchange
- C. As the perceived future foreign exchange volatility decreases, the value of all options increases.
- D. Option values can only change due to the factors related to the demand for specific options
Answer: A
NEW QUESTION 115
Which of the following about the ratios between various Tiers of capital is not a requirement of the Basel
Committee?
- A. Innovative instruments in Tier 1 are limited to a maximum of 15% of Tier 1 capital.
- B. Lower Tier 2 capital may only equal 50% of core capital.
- C. Tier 2 capital cannot exceed 50% of the bank's total regulatory capital.
- D. Upper Tier 2 capital may only equal 30% of core capital.
Answer: A
NEW QUESTION 116
Which one of the following four statements regarding commodity derivative risks is INCORRECT?
- A. Some commodities can be both in backwardation and a have a strong seasonal element.
- B. Calendar spreads represent a special case of basis risk and occur when the relative prices of commodity
futures do not come in alignment and the trader becomes exposed to the absolute price movements. - C. In most commodities, the longest term contracts are the most volatile, while the shortest term forward
contract are the least volatile. - D. Because of the different demand/supply balance in each region and the cost of transporting the oil
between regions, a tanker of Brent crude oil in the UK will have a different value to a UK buyer than a
tanker of Arab light crude oil in Singapore, which results in the basis risk.
Answer: C
NEW QUESTION 117
Which of the following statements defines Value-at-risk (VaR)?
- A. VaR is the worst possible loss on a financial instrument or a portfolio of financial instruments over a
given time period. - B. VaR is the maximum likely loss on a financial instrument or a portfolio of financial instruments over a
given time period with a given degree of probabilistic confidence. - C. VaR is the minimum likely loss on a financial instrument or a portfolio of financial instruments with a
given degree of probabilistic confidence. - D. VaR is the maximum of past losses over a given period of time.
Answer: B
NEW QUESTION 118
Which one of the following four statements correctly defines an option's delta?
- A. Delta is the multiplier that best approximates the short-term change in the value of an option.
- B. Delta measures the impact of volatility on the price of an option.
- C. Delta measures the expected decline in option with time and is usually expressed in years.
- D. Delta measures the effect of 1 bp in interest rate change on the option price.
Answer: A
NEW QUESTION 119
A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian
dollars and sell Brazilian reals. Alpha bank does not hold Brazilian reals so it asks for a quote to buy Brazilian
reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer, sells the
reals, and receives AUD 1,010,000. To perform foreign exchange matched position trading, the banks should
- A. Immediately buy the real above the market rate of 105 and pay AUD 1,050,050.
- B. Immediately buy the real at the market rate of 100 and pay AUD 1,000,000.
- C. Immediately sell the real at the market rate of 100 and receive AUD 1,000,000.
- D. Immediately sell the real above the market rate of 105 and receive AUD 1,050,050.
Answer: B
NEW QUESTION 120
Bank Zilo has $2 million in cash and $10 million in loans coming due tomorrow with an expected default rate
of 1%. The proceeds will be deposited overnight. The bank owes $ 10 million on a securities purchase that
settles in two days and pays off $9 million in commercial paper in three days that is not expected to renew.
How much money should the bank plan to raise so as to avoid a liquidity problem?
- A. $700 million
- B. $650 million
- C. $712 million
- D. $710 million
Answer: D
NEW QUESTION 121
Financial regulators in a European country are considering banning trading in highly complex derivative
instruments that are not settled through a centralized clearinghouse. This ban can result in:
I. The value of the country's currency dropping
II. Counterparties involved in trading of these derivative instruments failing to fulfill their obligations
III. The business model relying on these instruments failing
IV. Certain activities becoming illegal
- A. II, III
- B. II, III, IV
- C. I, II
- D. I, IV
Answer: B
NEW QUESTION 122
Which one of the following four statements regarding commodity exchanges is INCORRECT?
- A. Customers rarely trade physical commodities with banks.
- B. Commodity markets are mot liquid than debt markets.
- C. Banks trade in OTC contracts primarily to serve clients and facilitate client hedging and lending.
- D. Banks have no natural direct exposure to commodities.
Answer: B
NEW QUESTION 123
Which of the following statements describes a bank's reasons to set risk limits?
I. To control and minimize a bank's current risk exposure.
II. To predict future risks.
III. To allocate risks to business units.
IV. To keep risk within tolerance levels.
- A. III and IV
- B. I, III, and IV
- C. I and II
- D. I, II, and III
Answer: B
NEW QUESTION 124
Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading
strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should
Unico take to limit its risk exposure?
- A. A market-maker strategy that allows the traders to quote a buy and sell price to customers and other
banks and to trade at the relevant price on the sell side of the market. - B. A passive hedging strategy that allows the traders to price transactions with customers and other banks,
at the relevant bid price on the market. - C. A matched book strategy that allows the trading desk to match all customer positions immediately with
an equal and opposite position by trading internally or with another bank. - D. A covering strategy that manages positions in the product by executing covering deals or hedging deal at
the discretion of the trading des.
Answer: C
NEW QUESTION 125
To reduce the variability of net interest income, Gamma Bank can swap positions that make its duration gap
equal to
- A. 0.5
- B. 0
- C. 1
- D. 2
Answer: C
NEW QUESTION 126
Which one of the following areas does not typically report into a central operational risk function?
- A. Geopolitical and strategic planning
- B. Information security
- C. Business continuity planning
- D. Embedded operational risk coordinators or specialists or managers
Answer: A
NEW QUESTION 127
Which one of the four following statements about drawdowns is correct?
- A. Drawdown estimates the effect on bank's liabilities when the bank's credit rating is cut.
- B. Drawdown calculates significant losses in a particular business or a book.
- C. Drawdown measures the aggregate decline in market values of assets and positions due to a shock.
- D. Drawdown quantifies the peak-to-trough decline of an investment over a known time period.
Answer: D
NEW QUESTION 128
Which one of the following four statements represents a possible disadvantage of using total return swap to
manage equity portfolio risks?
- A. Similar to an equity forward position, the total return receiver does not get paid the dividend.
- B. The total return receiver needs to incur the transaction costs of establishing an equity position.
- C. The total return receiver does not have any voting rights.
- D. Similar to the formal portfolio rebalancing strategy, the total return receiver needs to modify the size of
the trading position.
Answer: C
NEW QUESTION 129
An asset and liability manager for a large financial institution has to recognize that retail products ___ include
embedded options, which are often not rationally exercised, while wholesale products ___ carry penalties for
repayment or include rights to terminate wholesale contracts on very different terms than are common in retail
products.
- A. Hardly ever; typically
- B. Frequently; rarely
- C. Frequently; typically
- D. Hardly ever; rarely
Answer: C
NEW QUESTION 130
A credit rating analyst wants to determine the expected duration of the default time for a new three-year loan,
which has a 2% likelihood of defaulting in the first year, a 3% likelihood of defaulting in the second year, and
a 5% likelihood of defaulting the third year. What is the expected duration for this three-year loan?
- A. 1.5 years
- B. 2.1 years
- C. 3.7 years
- D. 2.3 years
Answer: D
NEW QUESTION 131
The pricing of credit default swaps is a function of all of the following EXCEPT:
- A. Market spreads
- B. Probability of default
- C. Duration
- D. Loss given default
Answer: C
NEW QUESTION 132
Present value of a basis point (PVBP) is one of the ways to quantify the risk of a bond, and it measures:
- A. The change in value of a bond when yields increase by 0.01%.
- B. The present value of the future cash flows of a bond calculated at a yield equal to 1%.
- C. The percentage change in bond price when the yields change by 1%.
- D. The percentage change in bond price when yields change by 1 basis point.
Answer: A
NEW QUESTION 133
To estimate a partial change in option price, a risk manager will use the following formula:
- A. Partial change in option price = Delta x Gamma x (1+ Change in underlying price)
- B. Partial change in option price = Delta x Gamma x Change in underlying price
- C. Partial change in option price = Delta x Change in underlying price
- D. Partial change in option price = Delta x (1+ Change in underlying price)
Answer: C
NEW QUESTION 134
An organization's enterprise risk management framework defines its risk profile and typically reflects the
organization's
I. Market and credit risks
II. Operational and liquidity risks
III. Strategic and geopolitical risks
IV. Structural developments and industry position
- A. II, III
- B. I, II, III
- C. I, II
- D. I, IV
Answer: B
NEW QUESTION 135
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:
- A. Originate more floating interest rate loans
- B. Charge bank fees for underwriting loans
- C. Extend different types of credit
- D. Provide trust, asset management, and trading services to customers
Answer: A
NEW QUESTION 136
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 137
......
2016-FRR Actual Questions Answers PDF 100% Cover Real Exam Questions: https://vcetorrent.examtorrent.com/2016-FRR-prep4sure-dumps.html
