2023 2016-FRR dumps review - Professional Quiz Study Materials
2016-FRR Test Prep Training Practice Exam Questions Practice Tests
NEW QUESTION # 202
Banks duration match their assets and liabilities to manage their interest risk in their banking book. A bank has
$100 million in interest rate sensitive assets and $100 million in interest rate sensitive liabilities. Currently the
bank's assets have a duration of 5 and its liabilities have a duration of 2. The asset-liability management
committee of the bank is in the process of duration-matching. Which of the following actions would best
match the durations?
- A. Increase the duration of liabilities by 2 and decrease the duration of assets by 1.
- B. Decrease the duration of liabilities by 1 and decrease the duration of assets by 1.
- C. Increase the duration of liabilities by 2 and increase the duration of assets by 1.
- D. Decrease the duration of liabilities by 1 and increase the duration of assets by 1.
Answer: A
NEW QUESTION # 203
The data available to estimate the statistical distribution of bank losses is difficult to assemble for which of the
following reasons?
I. The needed data is vast in quantity.
II. The data requires bringing together significantly different measures of risk.
III. Some risks are difficult to quantify and hence the data might involve subjective elements.
- A. I, III
- B. II, III
- C. I, II
- D. I, II, III
Answer: B
NEW QUESTION # 204
An options trader is assessing the aggregate risk of her currency options exposures. As an options buyer, she
can potentially ___ lose more than the premium originally paid. As an option seller, however, she has a ___
risk on the contract and always receives a premium.
- A. Sometimes, limited
- B. Never, limited
- C. Sometimes, unlimited
- D. Never, unlimited
Answer: D
NEW QUESTION # 205
How could a bank's hedging activities with futures contracts expose it to liquidity risk?
- A. The bank could get exposed to liquidity risk since futures trade on an exchange.
- B. Prices may move such that a loss results on the hedge.
- C. The futures hedge may not work due to the widening of basis which could result in a loss for the bank.
- D. Since futures require margins which are settled every day, the bank could find itself scrambling for
funds.
Answer: D
NEW QUESTION # 206
Using the definitions used by JPMorgan Chase in their annual report, which of the following exposure types
would be considered as a non-trading risk exposure?
I. Short term equity investments
II. Loans held to maturity
III. Mortgage servicing rights
IV. Derivatives used to manage asset/liability exposure.
- A. III and IV
- B. II and III
- C. I and II
- D. II, III, and IV
Answer: D
NEW QUESTION # 207
Gamma Bank has $300 million in loans and $200 million in deposits. If the modified duration of the loans is
estimated to be 2, and the modified duration of the deposits is estimated to be 1, then the change in Gamma
Bank's equity value per 1% change in yield will be:
- A. -$2 million
- B. -$4 million
- C. -$3 million
- D. -$1 million
Answer: B
NEW QUESTION # 208
Which of the following are the most common methods to increase liquidity in stressed conditions?
I. Selling or securitizing assets.
II. Obtaining additional credit lines.
III. Securing a better credit rating.
- A. I
- B. II, III
- C. I, II, III
- D. I, II
Answer: D
NEW QUESTION # 209
Changes to which one of the following four factors would typically not increase the cost of credit?
- A. Higher risk premium on a fixed income instrument.
- B. Higher return earned on alternative investments.
- C. Increasing inflation rates in a country.
- D. Increase in consumption of goods and services.
Answer: A
NEW QUESTION # 210
Which one of the following four statements about market risk is correct? Market risk is
- A. The maximum likely loss in the market value of portfolios and financial instruments over a given period
of time. - B. The exposure to an adverse change in the credit quality in portfolios or of financial instruments.
- C. The exposure to an adverse change in the market value of portfolios and financial instruments caused by
a change in market prices or rates. - D. The maximum likely loss in the market value of portfolios and financial instruments caused by the
failure of the counterparty to meet its obligations.
Answer: C
NEW QUESTION # 211
Which of the following risk measures are based on the underlying assumption that interest rates across all
maturities change by exactly the same amount?
I. Present value of a basis point.
II. Yield volatility.
III. Macaulay's duration.
IV. Modified duration.
- A. I and II
- B. I, II, III, and IV
- C. I, II, and III
- D. I, III, and IV
Answer: D
NEW QUESTION # 212
To ensure good risk management which of the following should be true about the CRO role and function?
- A. The CRO should report to the CEO or the Board of Directors.
- B. The CRO should not be involved with the setting of risk limits.
- C. To ensure efficient flow of information the CRO should not be independent of business units.
- D. The CRO should receive compensation that is directly determined by the profit of the trading desk.
Answer: A
NEW QUESTION # 213
SigmaBank has many branches that offer the same products and services. Which one of the four following
statement presents an advantage of using RCSA questionnaire approach in the SigmaBank's operational risk
framework?
- A. This approach ensures that there has been full participation in the scoring, rather than a single view.
- B. The results can be collected electronically and the responses compared to identify themes, trends and
areas of potential control weakness or elevated risk. - C. The questionnaires are usually sent to specific nominated parties for completion.
- D. It provides a forum for an in-depth discussion of the operational risks in the firm.
Answer: B
NEW QUESTION # 214
Which one of the four following statements regarding minimum loss data standards is not correct?
- A. The loss data entry must include the actual loss amount.
- B. The loss data entry may include descriptive information about the drivers or causes of the loss event.
- C. The loss data program must comprehensively capture all material activities.
- D. The loss data entry should only include the date when the event was reported.
Answer: D
NEW QUESTION # 215
Gamma Bank provides a $100,000 loan to Big Bath retail stores at 5% interest rate (paid annually). The loan
also has an annual expected default rate of 2%, and loss given default at 50%. In this case, what will the bank's
expected loss be? What is the expected loss of this loan?
- A. $1,050
- B. $300
- C. $550
- D. $750
Answer: A
NEW QUESTION # 216
Which of the following factors can cause obligors to default at the same time?
I. Obligors may be harmed by exposures to similar risk factors simultaneously.
II. Obligors may exhibit herd behavior.
III. Obligors may be subject to the sampling bias.
IV. Obligors may exhibit speculative bias.
- A. I
- B. II, III
- C. III, IV
- D. I, II
Answer: D
NEW QUESTION # 217
As Japan ___ its budget deficits and ___ its dependence on debt, the Japanese currency, JPY, would ___ in
value against other currencies.
- A. Increases, reduces, appreciate
- B. Reduces, reduces, depreciate
- C. Reduces, increases, depreciate
- D. Reduces, reduces, appreciate
Answer: D
NEW QUESTION # 218
Gamma Bank estimates its monthly portfolio volatility at 5%.The portfolio's annual volatility is closest to
which of the following?
- A. 35%
- B. 30%
- C. 8%
- D. 17%
Answer: D
NEW QUESTION # 219
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 covering strategy that manages positions in the product by executing covering deals or hedging deal at
the discretion of the trading des. - B. 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. - C. 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. - D. A passive hedging strategy that allows the traders to price transactions with customers and other banks,
at the relevant bid price on the market.
Answer: B
NEW QUESTION # 220
BetaFin, a financial services firm, does not have retail branches, but has fixed income, equity, and asset
management divisions. Which one of the four following risk and control self-assessment (RCSA) methods fits
the firm's operational risk framework the best?
- A. RCSA loss data approach
- B. RCSA workshop approach
- C. RCSA questionnaire approach
- D. RCSA scenario analysis approach
Answer: B
NEW QUESTION # 221
Which one of the following four factors typically drives the pricing of wholesale products?
- A. Marketing considerations
- B. Long-term competitiveness
- C. Overall risk exposure
- D. Prevailing market price
Answer: D
NEW QUESTION # 222
Which one of the following four statements regarding counterparty credit risk is INCORRECT?
- A. Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its
default. - B. The exposure at default is variable due to fluctuations in swap valuations.
- C. Dynamic collateral provisions often increase counterparty risk considerably.
- D. The exposure at default can be negatively correlated to probability of default.
Answer: B
NEW QUESTION # 223
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. I, II
- B. I, II, III
- C. II, III
- D. I, IV
Answer: B
NEW QUESTION # 224
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