Ace GARP 2016-FRR Certification with Actual Questions Sep 30, 2025 Updated
2025 The Most Effective 2016-FRR with 390 Questions Answers
The Global Association of Risk Professionals (GARP) is an internationally recognized professional organization that is dedicated to the advancement of the risk management profession. The organization offers a range of educational programs, certifications, and resources that help risk professionals develop the skills and knowledge needed to navigate the complex landscape of financial risk. One of the key offerings of GARP is the Financial Risk and Regulation (FRR) Series Exam.
NEW QUESTION # 92
Floating rate bonds typically have ________ duration which means they have ________ sensitivity to interest rate changes.
- A. long, small
- B. short, high
- C. short, small
- D. long, high
Answer: C
Explanation:
Floating rate bonds typically have a short duration because their interest payments reset periodically, aligning closely with current interest rates. This frequent resetting makes them less sensitive to changes in interest rates compared to fixed-rate bonds, which have a long duration and are more sensitive to interest rate fluctuations.
NEW QUESTION # 93
Which one of the following four statements about the relationship between exchange rates and option values is correct?
- A. As the dollar appreciates relative to the pound, the right to sell dollars at a fixed pound exchange rate increases.
- B. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate decreases.
- C. As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate increases.
- D. As the dollar depreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate increases.
Answer: C
Explanation:
When the dollar strengthens against the pound, the value of an option that allows the purchase of dollars at a predetermined exchange rate increases. This is because the option provides the right to buy the appreciating dollar at a rate that becomes more favorable as the market rate moves higher.
NEW QUESTION # 94
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
- B. 1.5
- C. 1
- D. 0.8
Answer: A
Explanation:
* Identify the variables:
* Haircut in a repo transaction: 20%
* This implies that the lender will provide cash equivalent to 80% of the value of the collateral (CDOs in this case).
* Calculate the maximum leverage factor:
* The leverage factor can be calculated as the reciprocal of the proportion of the value after the haircut.
Leverage factor=1Haircut percentageLeverage factor=Haircut percentage1
* Given a 20% haircut, the calculation is:
Leverage factor=10.20=5Leverage factor=0.201=5
* However, in practice, leverage is often cited with respect to the additional amount borrowed relative to the initial equity. Thus, the effective leverage factor here is:
Leverage factor=10.201=4Leverage factor=0.2011=4
References:
* This detailed calculation is consistent with the principles outlined in financial risk management practices and the information provided in the document.
NEW QUESTION # 95
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. Provide trust, asset management, and trading services to customers
- D. Extend different types of credit
Answer: A
Explanation:
* Stabilizing Net Income in Volatile Interest Environments:
* Shifting from interest rate-sensitive sources to less sensitive sources is the key strategy to stabilize income.
* Strategies:
* Charging bank fees for underwriting loans: Generates fee income, which is less sensitive to interest rates.
* Providing trust, asset management, and trading services: Fee-based services and trading revenue are less sensitive to interest rates.
* Extending different types of credit: This strategy can diversify risk but does not directly reduce interest rate sensitivity.
* Incorrect Strategy:
* Originate more floating interest rate loans: This increases sensitivity to interest rate changes, opposite of the desired stabilization goal.
References
Source: How Finance Works
NEW QUESTION # 96
A risk manager analyzes a long position with a USD 10 million value. To hedge the portfolio, it seeks to use
options that decrease JPY 0.50 in value for every JPY 1 increase in the long position. At first approximation,
what is the overall exposure to USD depreciation?
- A. His overall portfolio has the same exposure to USD as a portfolio that is long USD 10 million.
- B. His overall portfolio has the same exposure to USD as a portfolio that is short USD 10 million.
- C. His overall portfolio has the same exposure to USD as a portfolio that is long USD 5 million.
- D. His overall portfolio has the same exposure to USD as a portfolio that is short USD 5 million.
Answer: C
NEW QUESTION # 97
Which one of the following statements regarding collateralized mortgage obligations (CMO) is incorrect?
- A. CMOs are pools of mortgages that are divided according to the timing of cash flows.
- B. CMOs have senior tranches which are considered short-term, low-risk instruments by banks
- C. CMOs are asset-backed securities that have pools of collateralized debt obligations (CDOs) as underlying collateral.
- D. CMOs are generally less risky investment than CDOs.
Answer: C
Explanation:
Collateralized mortgage obligations (CMOs) are a type of asset-backed security that pools together mortgages and then issues tranches with different maturities and levels of risk. They do not have CDOs as their underlying collateral; instead, they are backed by mortgage loans. Therefore, the statement that CMOs have pools of CDOs as underlying collateral is incorrect.
NEW QUESTION # 98
A risk management team of a European bank collects internal operational loss event data as part of the operational risk event program and uses this data as an input into an operational risk capital model. To comply with the Basel II Accord requirements and to form the basis of a capital model, the risk management team will need:
- A. A minimum of three years of loss data in a capital model, and the use of five years of data once it is available
- B. A minimum of five years of loss data in a capital model, and the use of ten years of data once it is available
- C. A minimum of two years of loss data in a capital model, and the use of four years of data once it is available
- D. A minimum of four years of loss data in a capital model, and the use of six years of data once it is available
Answer: A
Explanation:
Comprehensive and Detailed In-Depth Explanation:
Under Basel II's Advanced Measurement Approach (AMA) for operational risk, banks must use internal loss data as a key input into their capital models. The Basel II framework specifies that banks should have a minimum of three years of historical loss data when initially implementing the AMA, transitioning to five years as more data becomes available. This ensures robust statistical modeling of operational risk. The BCBS states: "A bank's internal loss data must cover a minimum observation period of three years when it first moves to the AMA, and five years thereafter." Options A, C, and D do not align with this requirement.
Reference:BCBS, "Basel II: International Convergence of Capital Measurement and Capital Standards," June
2006, para. 669-670; GARP FRR Study Notes, Operational Risk Section.
NEW QUESTION # 99
Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration
measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield
curve?
- A. Take positions to make the convexity zero
- B. Take positions to increase the duration
- C. Take positions to reduce the duration
- D. Since the portfolio is duration hedged Sam does not need to take additional positions.
Answer: A
NEW QUESTION # 100
Which one of the following four physical commodities markets has the right combination of characteristics that generally allows short selling in the market, without making the short-selling transaction prohibitively expensive?
- A. Natural Gas
- B. Oil
- C. Gold
- D. Grain
Answer: C
Explanation:
Short selling in physical commodities markets involves borrowing the commodity and selling it with the hope of buying it back at a lower price. The right combination of characteristics that generally allows short selling without making the transaction prohibitively expensive includes factors like liquidity, storage costs, and ease of borrowing.
* Oil: While the oil market is highly liquid, storage costs and logistical challenges can make short selling more expensive.
* Natural Gas: Similar to oil, natural gas involves significant storage and transportation costs, making short selling less attractive.
* Grain: Grain markets can have high volatility and storage costs that could complicate short selling.
* Gold: Gold has the ideal combination of characteristics for short selling. It is highly liquid, has relatively low storage costs, and is easy to borrow. These factors make short selling gold less prohibitively expensive compared to other commodities.
NEW QUESTION # 101
A bank owns a portfolio of bonds whose composition is shown below.
What is the modified duration of the portfolio?
- A. 2.30
- B. 0.5
- C. 8.5
- D. 1.30
Answer: D
NEW QUESTION # 102
Over a long period of time DeltaBank has amassed a large equity option position. Which of the following risks
should be considered in this transaction?
I. Counterparty risk on long OTC option positions
II. Counterparty risk on short OTC option positions
III. Counterparty risk on long exchange-traded option positions
IV. Counterparty risk on short exchange-traded option positions
- A. I
- B. II, III, IV
- C. II, III
- D. I, II
Answer: A
NEW QUESTION # 103
Which one of the four following statements about drawdowns is correct?
- A. Drawdown calculates significant losses in a particular business or a book.
- B. Drawdown measures the aggregate decline in market values of assets and positions due to a shock.
- C. Drawdown estimates the effect on bank's liabilities when the bank's credit rating is cut.
- D. Drawdown quantifies the peak-to-trough decline of an investment over a known time period.
Answer: D
Explanation:
A drawdown quantifies the peak-to-trough decline of an investment over a known time period. This measure is used to understand the maximum loss an investment has suffered from a peak to a subsequent trough, which is critical for risk assessment.
NEW QUESTION # 104
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, III, and IV
- C. I, II and III
- D. II and III
Answer: D
NEW QUESTION # 105
Normally, commercial banking can be viewed as a fixed income carry trade since
- A. Short-term floating-rate deposits are used to fund short-term floating rate loans.
- B. Short-term fixed-rate deposits are used to fund short-term floating rate loans.
- C. Short-term floating-rate deposits are used to fund long-term fixed rate loans.
- D. Short-term fixed rate deposits are used to fund long-term floating rate loans.
Answer: C
Explanation:
Commercial banking can be viewed as a fixed-income carry trade because banks typically engage in maturity transformation, where they borrow short-term and lend long-term.
* Short-term floating-rate deposits:
* Banks often attract deposits with short-term maturities and floating interest rates.
* These deposits are generally considered stable and low-cost sources of funds.
* Long-term fixed-rate loans:
* Banks use these short-term deposits to fund long-term loans, such as mortgages or business loans, which typically have fixed interest rates.
* This creates a mismatch between the interest rates and maturities of assets and liabilities.
* Carry trade analogy:
* The bank earns the spread between the interest it pays on short-term deposits and the interest it earns on long-term loans.
* This process is similar to a carry trade, where profits are derived from the difference between borrowing costs and investment returns.
Thus, commercial banking inherently involves aspects of a carry trade through the practice of borrowing short- term to lend long-term.
References
Source: How Finance Works
NEW QUESTION # 106
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; rarely
- B. Hardly ever; typically
- C. Frequently; typically
- D. Frequently; rarely
Answer: C
NEW QUESTION # 107
A credit associate extending a loan to an obligor suspects that the obligor may change his behavior after the loan has been originated. The obligor in this case may use the loan proceeds for purposes not sanctioned by the lender, thereby increasing the risk of default. Hence, the credit associate must estimate the probability of default based on the assumptions about the applicability of the following tendency to this lending situation:
- A. Adverse selection
- B. Moral hazard
- C. Short bias
- D. Speculation
Answer: B
Explanation:
Moral hazard occurs when one party in a contractual relationship can take risks because the consequences of those risks will be borne by another party. In this scenario, the credit associate is concerned that the obligor might use the loan proceeds for purposes not sanctioned by the lender, thereby increasing the risk of default.
This situation is a classic example of moral hazard, where the obligor's behavior after receiving the loan could change in a way that increases the lender's risk without the lender having control over those actions.
NEW QUESTION # 108
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. $650 million
- B. $712 million
- C. $700 million
- D. $710 million
Answer: C
Explanation:
Bank Zilo needs to carefully manage its liquidity to avoid potential problems. Here's the detailed analysis:
* Current Cash: $2 million
* Loans Due Tomorrow: $10 million (with an expected 1% default rate, meaning 99% will be repaid)
* Expected Loan Repayment: $10 million * 99% = $9.9 million
* Total Cash Available Tomorrow: $2 million + $9.9 million = $11.9 million However, the bank has significant obligations coming up:
* Securities Purchase (in 2 days): $10 million
* Commercial Paper Maturing (in 3 days): $9 million
Given these commitments, the bank needs to ensure it has enough liquidity:
* Total Obligations in 3 Days: $10 million (securities) + $9 million (commercial paper) = $19 million
* Shortfall: $19 million - $11.9 million = $7.1 million
Therefore, to avoid a liquidity problem, the bank should plan to raise at least $7.1 million.
References: The calculation aligns with the principles outlined in "How Finance Works" on managing liquidity needs and planning for upcoming financial obligations.
NEW QUESTION # 109
Which of the following bank events could stress the bank's liquidity position?
I. Obligations to fund assets like mortgages
II. Unusually large depositor withdrawals
III. Counterparty collateral calls
IV. Nonperforming assets
- A. III, IV
- B. IV
- C. I, II, III and IV
- D. I, II
Answer: C
NEW QUESTION # 110
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. Exchange rate and credit risk
- D. Credit risk
Answer: B
NEW QUESTION # 111
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GARP 2016-FRR Certification Exam is a rigorous and comprehensive program designed to test the knowledge and skills of financial risk and regulation professionals. Financial Risk and Regulation (FRR) Series certification is recognized globally and provides candidates with a competitive edge in the job market. If you are looking to enhance your career in financial risk management or regulatory compliance, the GARP 2016-FRR Certification Exam is definitely worth considering.
GARP 2016-FRR Exam is a comprehensive test that covers a wide range of topics related to financial risk and regulation. It consists of two parts, Part I and Part II, each of which contains 80 multiple-choice questions. The topics covered in the exam include market risk, credit risk, operational risk, liquidity risk, regulatory compliance, and risk management frameworks. 2016-FRR exam is designed to test the candidate's knowledge and understanding of these topics, as well as their ability to apply this knowledge in practical scenarios. Passing 2016-FRR exam demonstrates a high level of proficiency and expertise in financial risk management and regulatory compliance.
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