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[2022] 2016-FRR PDF Questions - Perfect Prospect To Go With VCEEngine Practice Exam
NEW QUESTION 161
Which one of the following statements about futures contracts is correct?
I. Futures contracts are subject to the same risks as the underlying instruments.
II. Futures contracts have additional interest rate risk die to the future delivery date.
III. Futures contracts traded in a clearinghouse system are exposed to credit risk with numerous counterparties.
- A. II, III
- B. I, II, III
- C. I, III
- D. I
Answer: D
NEW QUESTION 162
Securitization is the process by which banks
I. Issue bonds where the payment of interest and repayment of principal on the bonds depends on the cash flow
generated by a pool of bank assets.
II. Issue bonds where the bank has transferred its legal right to payment of interest and repayment of principal
to bondholders.
III. Sell illiquid assets.
- A. I, II, III
- B. I, III
- C. I
- D. I, II
Answer: A
NEW QUESTION 163
The retail banking business of BankGamma has an expected P & 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 & 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. 58%.
- C. 72%.
- D. 50%.
Answer: B
NEW QUESTION 164
Which one of the four following statements about the Risk Adjusted Return on Capital (RAROC) is correct?
RAROC is the ratio of:
- A. Profitability to the risk of a trading portfolio or bank business unit.
- B. Profitability to the expected return of a trading portfolio or bank business unit.
- C. Risk to the profitability of a trading portfolio or a business unit within the bank.
- D. Value-at-risk to the profitability of a trading portfolio or a business unit.
Answer: A
NEW QUESTION 165
Bank Milo has $4 million in cash and $5 million in loans coming due tomorrow with an expected default rate
of 1%. The proceeds will be deposited overnight. The bank owes $ 9 million on a securities purchase that
settles in two days and pays off $8 million in commercial paper in three days that is not expected to renew. On
what days does the bank face negative cumulative liquidity?
- A. Day 2 only.
- B. Days 1, 2 and 3.
- C. Day 3 only.
- D. Days 2 and 3.
Answer: D
NEW QUESTION 166
Which of the following would a bank resort to as a "lender of last resort" in the event of an extreme liquidity
crisis?
- A. Futures Markets
- B. LIBOR markets
- C. Discount window
- D. U.S treasury markets
Answer: C
NEW QUESTION 167
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.
- A. I and III
- B. I, II and III
- C. II and IV
- D. II, III, and IV
Answer: D
NEW QUESTION 168
Which one of the following four statements regarding the basic Net Interest Income model is INCORRECT?
- A. Assets and liabilities have the same interest rate sensitivities.
- B. The amount of intermediated funds can be a function of interest rate levels.
- C. Net interest income risk does not address the impact of changing interest rates on bank equity value.
- D. Effective repricing date can be different than contractual repricing.
Answer: A
NEW QUESTION 169
A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations. If these CDOs can
be used in a repo transaction at a 20% haircut, what is the maximum leverage factor for a transaction with the
CDOs?
- A. 0.8
- B. 0
- C. 1
- D. 1.5
Answer: B
NEW QUESTION 170
To estimate the forward price of oil, a commodity trader would most likely use the following pricing
relationship:
- A. Oil forward price = Expected future oil price ± Oil storage cost + (1 - Oil market risk premium)
- B. Oil forward price = Expected future oil price ± Oil storage cost + (1 + Oil market risk premium)
- C. Oil forward price = Expected future oil price ± Oil market risk premium
- D. Oil forward price = Expected future oil price ± storage cost + Oil market risk premium
Answer: C
NEW QUESTION 171
Which statements correctly describe the features of using subscription databases for operational loss data
analysis?
Subscription databases
I. Provide central data repositories and benchmarking services to their members.
II. Can provide insight into whether the losses in a firm reflect the usual losses in their industry.
III. Assist with mapping the events to the appropriate business lines, risk categories and causes.
IV. Reflect only events that are interesting to the press and are reported in the press.
- A. I and II
- B. II and III
- C. I, II and III
- D. II, III, and IV
Answer: B
NEW QUESTION 172
Which of the following factors would typically increase the credit spread?
I. Increase in the probability of default of the issuer.
II. Decrease in risk premium.
III. Decrease in loss given default of the issuer.
IV. Increase in expected loss.
- A. II and III
- B. I, II, and IV
- C. I and IV
- D. I
Answer: C
NEW QUESTION 173
Beta Insurance Company is only allowed to invest in investment grade bonds. To maximize the interest
income, Beta Insurance Company should invest in bonds with which of the following ratings?
- A. A
- B. B
- C. AA
- D. AAA
Answer: A
NEW QUESTION 174
A credit risk analyst is evaluating factors that quantify credit risk exposures. The risk that the borrower would
fail to make full and timely repayments of its financial obligations over a given time horizon typically refers
to:
- A. Duration of default.
- B. Exposure at default.
- C. Loss given default.
- D. Probability of default.
Answer: D
NEW QUESTION 175
According to Basel II what constitutes Tier 2 capital?
- A. Debt that is subordinate to equity.
- B. Debt that is not subordinated to equity and innovative capital products that would count as Tier 1 capital
and excluding perpetual non-cumulative preference shares. - C. Core capital excluding undisclosed reserves and general reserves that the bank may make against its
expected loan losses. - D. Equity capital and debt together.
Answer: B
NEW QUESTION 176
Which of the following statements defines Value-at-risk (VaR)?
- A. VaR is the maximum of past losses over a given period of time.
- 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 worst possible loss on a financial instrument or a portfolio of financial instruments over a
given time period. - D. VaR is the minimum likely loss on a financial instrument or a portfolio of financial instruments with a
given degree of probabilistic confidence.
Answer: B
NEW QUESTION 177
Which one of the following four statements best describes challenges of delta-normal method of mapping
options positions?
Delta-normal method understates
- A. Risks of long and short positions for both calls and puts.
- B. Risks of long option positions for puts and overstates risks of short option positions for calls.
- C. Risks of long option positions for calls and overstates risks of short option positions for puts.
- D. Risks of short option positions and overstates risks of long option positions for both calls and puts.
Answer: D
NEW QUESTION 178
Mega Bank holds a $250 million mortgage loan portfolio, which reprices every 5 years at LIBOR + 10%. The
bank also has $150 million in deposits that reprices every month at LIBOR + 3%. What is the amount of Mega
Bank's rate sensitive liabilities?
- A. $150 million
- B. $200 million
- C. $250 million
- D. $100 million
Answer: A
NEW QUESTION 179
Which one of the following statements correctly identifies risks in foreign exchange forwards?
- A. Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most
inter-country interest rates differentials are small, and the effect of compounding is small for short
periods of time. - B. Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most
inter-country interest rates differentials are significant, and the effect of compounding is large for short
periods of time. - C. Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most
inter-country interest rates differentials are significant, and the effect of compounding is small for short
periods of time. - D. Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most
inter-country interest rates differentials are small, and the effect of compounding is large for short
periods of time.
Answer: A
NEW QUESTION 180
Which of the following reports have been suggested by the FDIC that banks should produce in addition to the
usual probabilistic analysis and stress tests in order to gauge liquidity issues?
I. Cash flow gaps
II. Funding availability
III. Critical assumptions used in credit projections
- A. I, II, III
- B. I, III
- C. I
- D. I, II
Answer: A
NEW QUESTION 181
Bank Sigma has an opportunity to do a securitization deal for a credit card company, but has to retain a portion
of the residual risk of the deal with an estimated VaR of $8 MM. Its fees for the deal are $2 MM, and the
short-term financing costs are $600,000. What would be the RAROC for this transaction?
- A. 12%
- B. 25%
- C. 17.5%
- D. 33%
Answer: C
NEW QUESTION 182
A portfolio consists of two floating rate bonds and one fixed rate bond.
Based on the information below, modified duration of this portfolio is
- A. 3.00
- B. 4.28
- C. 4.44
- D. 2.64
Answer: D
NEW QUESTION 183
What is a difference between currency swaps and interest rate swaps?
- A. Currency swaps generate foreign exchange rate risk in addition to interest rate risk.
- B. Currency swaps do not require the exchange of notional principal on maturity.
- C. Currency swaps allow banks and customers to obtain the risk/reward profile of long-term interest rates
without having to use long-term funding. - D. Currency swaps are OTC derivative contracts.
Answer: A
NEW QUESTION 184
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