Expert Answers to GARP Exam 2016-FRR Questions

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Financial Risk and Regulation Financial Risk and Regulation (FRR) Series

Financial Risk and Regulation (FRR) Series

Last Update May 19, 2024
Total Questions : 342

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Questions 4

Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment.

What may happen to the Delta's initial credit parameter and the value of its loan if the machinery industry experiences adverse structural changes?

Options:

Probability of default and loss at default may decrease simultaneously, while duration rises causing the loan value to decrease.

Probability of default and loss at default may decrease simultaneously, while duration falls causing the loan value to decrease.

Probability of default and loss at default may increase simultaneously, while duration rises causing the loan value to decrease.

Probability of default and loss at default may increase simultaneously, while duration falls causing the loan value to decrease.

Discussion 0

Questions 5

Which of the following risk types are historically associated with credit derivatives?

I. Documentation risk

II. Definition of credit events

III. Occurrence of credit events

IV. Enterprise risk

Options:

I, IV

I, II

I, II, III

II, III, IV

Discussion 0

Questions 6

A credit risk analyst is evaluating factors that quantify credit risk exposures. The risk that the borrower would fail to make full and timely repayments of its financial obligations over a given time horizon typically refers to:

Options:

Duration of default.

Exposure at default.

Loss given default.

Probability of default.

Discussion 0

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Questions 7

To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements:

I. Bonds

II. Marketable loans

III. Credit card loans

Options:

I, II

II, III