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GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q87-Q92):

NEW QUESTION # 87
Alpha Bank estimates its 1-month, 95% VaR is 30 million EUR. This means that in the next month, there is a

A. 95% chance that AlphaBank will at least lose 30 million EUR.
B. 95% chance that AlphaBank can lose more than 30 million EUR.
C. 95% chance that AlphaBank will lose exactly 30 million EUR.
D. 95% chance that AlphaBank can lose at most 30 million EUR.

Answer: D

Explanation:
Value at Risk (VaR) at a 95% confidence level indicates that there is a 95% probability that the loss will not exceed the specified amount (30 million EUR) over a given period (1 month in this case). Conversely, there is a 5% chance that the loss could exceed this amount.
References:
* Explanation from standard VaR concepts and financial risk management practices.

NEW QUESTION # 88
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. I, III, and IV
B. III and IV
C. I, II, and III
D. I and II

Answer: A

Explanation:
Banks set risk limits for several reasons:
* To control and minimize a bank's current risk exposure: This helps in managing and mitigating existing risks.
* To allocate risks to business units: This ensures that risks are managed at appropriate levels within the organization.
* To keep risk within tolerance levels: This ensures that the bank's overall risk exposure does not exceed its risk appetite.
Setting these limits is a proactive measure to ensure that the bank operates within its risk capacity and is prepared for potential future risks.

NEW QUESTION # 89
Which one of the following four statements about the "market-maker" trading strategy is INCORRECT?

A. A market maker that attracts buy and sell orders can make a profit from the spread quoted between the buy and sell price.
B. A market maker can benefit from the market information she gets from the trades she is asked to execute.
C. This strategy is independent of market liquidity and number of other market makers.
D. This risk in this strategy is that traders have to take positions that may quickly incur a loss.

Answer: C

Explanation:
Market-making involves providing liquidity by being ready to buy and sell securities at any time. The profitability and functioning of a market-making strategy depend on several factors, including:
* Profit from the Spread:
* Market makers profit from the difference between the buy (bid) price and the sell (ask) price.
* Market Information:
* Market makers can benefit from the information they obtain through the trades they execute.
* Liquidity and Competition:
* The success of a market maker is highly dependent on the market's liquidity and the number of other market makers. More liquidity and less competition typically enhance the profitability of market makers.
* Risk of Holding Positions:
* Market makers may incur losses if they hold positions that quickly move against them.
Therefore, the incorrect statement is that the market-making strategy is independent of market liquidity and the number of other market makers.
ReferencesSource: How Finance Works

NEW QUESTION # 90
A bank customer can use either a plain vanilla option or an option contract with volumetric flexibility to
reduce the following risks:
I. Market Risk
II. Basis Risk
III. Operational Risk

A. II
B. II, III
C. I, II
D. I

Answer: C

NEW QUESTION # 91
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 # 92
......

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Newest 2016-FRR Latest Dumps Questions, Ensure to pass the 2016-FRR Exam

2016-FRR Latest Dumps Questions Free PDF | Reliable Latest 2016-FRR Study Guide: Financial Risk and Regulation (FRR) Series

GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q87-Q92):

2016-FRR Latest Dumps Questions & PassSureExam - Leader in Certification Exam Materials & GARP Financial Risk and Regulation (FRR) Series

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