[Feb 04, 2022] 2016-FRR Dumps Full Questions - Exam Study Guide
Financial Risk and Regulation Free Certification Exam Material from PracticeDump with 345 Questions
NEW QUESTION 59
On January 1, 2010 the TED (treasury-euro dollar) spread was 0.9%, and on January 31, 2010 the TED spread
is 0.4%. As a risk manager, how would you interpret this change?
- A. The decrease in the TED spread indicates an increase in credit risk on interbank loans.
- B. Increase in credit risk on T-bills.
- C. The decrease in the TED spread indicates a decrease in credit risk on interbank loans.
- D. Increase in interest rates on both interbank loans and T-bills.
Answer: C
NEW QUESTION 60
Which one of the following four features is NOT a typical characteristic of futures contracts?
- A. Fixed notional amount per contract
- B. Traded Over-the-counter only
- C. Fixed dates for delivery
- D. Daily margin calls
Answer: B
NEW QUESTION 61
Nijenhaus Bruch is currently creating a program of operational loss data collection at a bank with a large
branch network. Which minimal data standards should this collection approach include to meet minimum loss
data collecting standards?
- A. Reports should capture the date of the event, the amount of loss, and recoveries of gross loss amounts.
- B. Reports should capture both the date of the event and the amount of loss.
- C. Reports should be designed to be shared with external data loss consortia recipients.
- D. Reports should only include the actual loss date.
Answer: A
NEW QUESTION 62
Which one of the following four options does NOT represent a benefit of compensating balances to the bank?
- A. Compensation balances influence the expected loss rate of the bank given the default obligor and
improve capital structure by controlling obligor type and avoiding payment delays. - B. Compensating balances allow the bank to net some of the exposure they may have in case of default, by
taking funds from these specific deposit account one the borrower defaults. - C. Since the compensating balances reduce the next amount lent to the borrower, the earned return on the
loan is increased, further widening the bank's interest rate margin and profitability. - D. Since the compensating balances cannot be withdrawn at short notice, if at all, they are not considered
transaction accounts and are able to provide a stable funding to the bank, reducing its reliance on more
volatile external inter-bank based funding sources.
Answer: A
NEW QUESTION 63
Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a
foreign exchange option?
- A. Option exercise price
- B. Underlying interest rates
- C. Discrete future stock prices
- D. Underlying exchange rates
Answer: C
NEW QUESTION 64
A credit analyst wants to determine a good pricing strategy to compensate for credit decisions that might have
been made incorrectly. When analyzing her credit portfolio, the analyst focuses on the spreads in each loan to
determine if they are sufficient to compensate the bank for all of the following costs and risks EXCEPT.
- A. The inherent risk of lending to this borrower while providing a return on the risk capital used to the
support the loan. - B. The overhead cost of maintaining the loan and the account.
- C. The marginal cost of funds provided.
- D. The opportunity cost of risk-adjusted marginal cost of capital.
Answer: D
NEW QUESTION 65
Which one of the four following statements about back testing the VaR models is correct?
Back testing requires
- A. Plotting the daily profit and losses along with the ranges predicted by VaR models
- B. Plotting VaR forecasts against the proportion of daily losses exceeding the average loss.
- C. Determining the proportion of daily profits exceeding those predicted by VaR.
- D. Comparing the predictive ability of VaR on a daily basis to the realized daily profits and losses.
Answer: D
NEW QUESTION 66
Which one of the four following statements about consortium databases is correct?
Consortium databases
- A. Gather information from news articles.
- B. Use data from the top 5% of the industry.
- C. Provide data to map risk categories with causes.
- D. Contain anonymous information.
Answer: D
NEW QUESTION 67
Altman's Z-score incorporates all the following variables that are predictive of bankruptcy EXCEPT:
- A. Equity to debt
- B. Return on total assets
- C. Return on equity
- D. Sales to total assets
Answer: C
NEW QUESTION 68
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 69
Which one of the following four regulatory drivers for operational risk management includes risk and control
requirements for financial statements in the United States?
- A. The Markets in Financial Instruments Directive
- B. Basel II Accord
- C. Solvency II
- D. The Sarbanes-Oxley Act
Answer: D
NEW QUESTION 70
What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?
- A. The short term rates must fall enough to get some borrowers to borrow long-term and some lenders to
lend short-term. - B. The long term rates must rise enough to get some borrowers to borrow long-term and some lenders to
lend short-term. - C. The long term rates must rise enough to get some borrowers to borrow short-term and some lenders to
lend long-term. - D. The short term rates must rise enough to get some borrowers to borrow short-term and some lenders to
lend long-term.
Answer: C
NEW QUESTION 71
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 72
Using a forward transaction, Omega Bank buys 100 metric tones of aluminum for delivery in six-months' time.
However, after two months, the bank becomes concerned with the potential fluctuations in aluminum prices
and wants to hedge its potential exposure against a possible decline in aluminum prices. Which one of the
following four strategies could the bank use to offset the risk from its current exposure to aluminum as it sets
the price for selling the commodity in four-months' time?
- A. Sell an aluminum forward contract
- B. Buy an aluminum forward contract
- C. Sell an aluminum futures contract
- D. Buy an aluminum futures contract
Answer: C
NEW QUESTION 73
Which one of the four following non-statistical risk measures are typically not used to quantify market risk?
- A. Convexity
- B. Net closed positions
- C. Basis point values
- D. Option sensitivities
Answer: B
NEW QUESTION 74
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