2016-FRR Exam Dumps Pass with Updated Nov-2021 Tests Dumps
2016-FRR exam questions for practice in 2021 Updated 345 Questions
NEW QUESTION 133
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. Buy an aluminum futures contract
- B. Sell an aluminum forward contract
- C. Buy an aluminum forward contract
- D. Sell an aluminum futures contract
Answer: D
NEW QUESTION 134
Which one of the following statements accurately describes market risk tolerance?
- A. Market risk tolerance is the maximum loss the bank is willing to bear due to fluctuations in market
prices and rates. - B. Market risk tolerance is the maximum likely gain in the market value of portfolios over a given period
of time. - C. Market risk tolerance is the minimum loss the bank is willing to bear due to fluctuations in market prices
and rates. - D. Market risk tolerance is the maximum loss in the market value of financial instruments caused by the
failure of the counterparty to meet its obligations.
Answer: A
NEW QUESTION 135
A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian
dollars and sell Brazilian reals. Alpha bank does not hold Brazilian reals so it asks for a quote to buy Brazilian
reals in the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer, sells the
reals, and receives AUD 1,010,000. To perform foreign exchange matched position trading, the banks should
- A. Immediately sell the real above the market rate of 105 and receive AUD 1,050,050.
- B. Immediately buy the real above the market rate of 105 and pay AUD 1,050,050.
- C. Immediately buy the real at the market rate of 100 and pay AUD 1,000,000.
- D. Immediately sell the real at the market rate of 100 and receive AUD 1,000,000.
Answer: C
NEW QUESTION 136
Which one of the following four alternatives correctly identifies the purpose of a clearinghouse in trading
activities?
- A. Reduction of counterparty risk and liquidity risk
- B. Reduction of market risk and credit risk
- C. Reduction of operational risk and credit risk
- D. Reduction of basis risk and mark-to-market risk
Answer: A
NEW QUESTION 137
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
- C. 1.5
- D. 0.8
Answer: A
NEW QUESTION 138
Which of the following statements regarding bonds is correct?
I. Interest rates on bonds are typically stated on an annualized rate.
II. Bonds can pay floating coupons that are directly linked to various interest rate indices.
III. Convertible bonds have an element of prepayment risk.
IV. Callable bonds have an element of equity risk.
- A. I, II, and III
- B. I only
- C. I and II
- D. II, III, and IV
Answer: C
NEW QUESTION 139
For a bank a 1-year VaR of USD 10 million at 95% confidence level means that:
- A. There is a 5% chance that the worst loss would be USD 10 million in a year.
- B. There is a 5% chance that the bank would lose more than USD 10 million in a year.
- C. There is a 5% chance that the least loss would be USD 10 million in a year.
- D. There is a 5% chance that the bank would lose less than USD 10 million in a year.
Answer: B
NEW QUESTION 140
Arnold Wu owns a floating rate bond. He is concerned that the rates may fall in the future decreasing his
payment amount. Which of the following instruments should he buy to hedge against the fall in interest rates?
- A. Interest rate cap
- B. Interest rate swap that receives floating and pays fixed
- C. Index amortizing swap
- D. Interest rate floor
Answer: D
NEW QUESTION 141
The skewness of ABC company's stock returns equal -1.5. What is the correct interpretation of this?
- A. It indicates higher relative probability of negative returns compared to estimates derived from a normal
distribution. - B. It indicates higher relative probability of extreme events than non-extreme events compared to estimates
from a normal distribution. - C. It indicates lower probability of extreme negative events compared to the normal distribution.
- D. It indicates that the returns are indeed normally distributed.
Answer: A
NEW QUESTION 142
To estimate the interest charges on the loan, an analyst should use one of the following four formulas:
- A. Loan interest = Risk-free rate - Probability of default x Loss given default - Spread
- B. Loan interest = Risk-free rate - Probability of default x Loss given default + Spread
- C. Loan interest = Risk-free rate + Probability of default x Loss given default - Spread
- D. Loan interest = Risk-free rate + Probability of default x Loss given default + Spread
Answer: D
NEW QUESTION 143
A bank customer expecting to pay its Brazilian supplier BRL 100 million asks Alpha Bank to buy Australian
dollars and sell Brazilian reals. Alpha bank does not hold reals so it asks for a quote to buy Brazilian reals in
the market. The market rate is 100. The bank quotes a selling rate of 101 to its customer and sells the reals at
this quoted price. Then the bank immediately buys the real at the market rate and completes foreign exchange
matched transaction. What is the financial impact of this transaction for Alpha bank?
- A. This transaction leaves the bank a loss of AUD 10,101.
- B. This transaction leaves the bank a profit of AUD 10,101.
- C. This transaction leaves the bank a profit of BRL 10,101.
- D. This transaction leaves the bank a loss of BRL 10,101.
Answer: B
NEW QUESTION 144
To estimate a partial change in option price, a risk manager will use the following formula:
- A. Partial change in option price = Delta x Change in underlying price
- B. Partial change in option price = Delta x (1+ Change in underlying price)
- C. Partial change in option price = Delta x Gamma x Change in underlying price
- D. Partial change in option price = Delta x Gamma x (1+ Change in underlying price)
Answer: A
NEW QUESTION 145
In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the
entire trading day. Which of the following factors would most likely affect foreign exchange option values?
I. Change in the value of the underlying
II. Change in the perception of future volatility
III. Change in interest rates
IV. Passage of time
- A. I, II, III
- B. II, III
- C. I, II, III, IV
- D. I, II
Answer: C
NEW QUESTION 146
Which one of the following is a reason for a bank to keep a commercial loan in its portfolio until maturity?
I. Commercial loans usually have attractive risk-return profile.
II. Commercial loans are difficult to sell due to non standard features.
III. Commercial loans could be used to maintain good relations with important customers.
IV. The credit risk in commercial loans is low.
- A. I, II and III
- B. II and IV
- C. IV only
- D. III and IV
Answer: A
NEW QUESTION 147
10 basis points are equal to:
- A. 0.01%
- B. 0.1%
- C. 10%
- D. 1%
Answer: B
NEW QUESTION 148
Why do regulatory standards impose formulaic capital calculations for all of the banks activities?
I. If the banks use different models it is difficult for a regulator to compare results across banks.
II. By imposing standardized calculations regulators can make sure that banks are not missing key risks in
their calculations.
III. By imposing standardized calculations regulators can make sure that banks do not use capital calculations
to game the banking regulation system.
- A. I,II
- B. II, III
- C. I
- D. I,II, III
Answer: D
NEW QUESTION 149
Which one of the four following statements about a minimal loss threshold in operational loss data collection
is incorrect?
- A. Setting an operational loss data collection threshold depends on the risk appetite of the firm and
regulatory requirements it needs to meet. - B. The operational loss data collection program has to capture all losses regardless of their size.
- C. A company can have differing operational loss data collection and reporting thresholds for different
departments. - D. The operational loss data collection program must include all material losses that are above minimal
gross loss threshold.
Answer: B
NEW QUESTION 150
Bank Muri 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
day 2, $1 million in loans is coming in with an expected default rate of 1% and on day 3, $2 million in loans is
coming in with expected default rate of 2%. How much should the bank plan to raise in order to avoid liquidity
problems?
- A. $500 million
- B. $550 million
- C. $508 million
- D. $510 million
Answer: D
NEW QUESTION 151
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, III
- B. I, II, III
- C. I
- D. I, II
Answer: B
NEW QUESTION 152
Gamma Bank is active in loan underwriting and securitization business, and given its collective credit
exposure, it will be typically most interested in the following types of portfolio credit risk:
I. Expected loss
II. Duration
III. Unexpected loss
IV. Factor sensitivities
- A. I, III
- B. II
- C. I, III, IV
- D. I
Answer: C
NEW QUESTION 153
Which one of the following four statements about preferred shares is INCORRECT?
- A. Preferred shares are subordinated to debt.
- B. Preferred shares represent residual of a corporation after its other liabilities have been paid.
- C. Preferred shares can be perpetual or have maturities far exceeding debt maturities.
- D. Preferred shares refer to a class of securities that is a cross between equity and debt.
Answer: B
NEW QUESTION 154
Altman's Z-score incorporates all the following variables that are predictive of bankruptcy EXCEPT:
- A. Return on total assets
- B. Sales to total assets
- C. Equity to debt
- D. Return on equity
Answer: D
NEW QUESTION 155
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. Never, limited
- B. Sometimes, unlimited
- C. Never, unlimited
- D. Sometimes, limited
Answer: C
NEW QUESTION 156
An options trader for a large institutional investor takes a long equity option position. Which of the following
risks need to be considered when taking this position?
I. All the risks of underlying equities
II. Perceived volatility changes
III. Future dividends yields
IV. Risk-free interest rates
- A. II, III
- B. I, II, III, IV
- C. III, IV
- D. I, II
Answer: B
NEW QUESTION 157
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