GARP Updated 2016-FRR Exam Questions and Answers by hailey

A country's creditworthiness is typically influenced by various performance statistics that indicate the overall health of its economy. Here’s a detailed analysis of each option:

A. Low unemployment: Low unemployment indicates a healthy labor market, suggesting economic stability and growth, which positively impacts creditworthiness.

B. Low inflation: Low inflation reflects price stability, which helps maintain the purchasing power of the currency and economic stability, thus benefiting creditworthiness.

C. High degrees of investment: High levels of investment indicate confidence in the economy and potential for future growth, positively affecting creditworthiness.

D. Low degrees of savings: Low savings rates can indicate potential issues with financial stability, as it suggests that households and the economy might lack a financial buffer against economic shocks. This can negatively impact creditworthiness, making it the exception in this list.

Bonds and loans are fundamentally different in their legal structures and treatment. Bonds are typically issued in the public markets and are subject to securities laws and regulations, while loans are generally private agreements between a borrower and a lender.

Both instruments can be used to estimate credit capital under Basel II provisions, so option C is incorrect.

The pricing drivers for bonds and loans can overlap significantly, such as interest rates and credit risk, so option B is not the core difference.

Both bonds and loans can be subject to credit counterparty regulations, making option D incorrect.

References:

How Finance Works: "The core difference between bonds and loans lies in their legal treatment and issuance processes."

A small regional bank seeking to hedge foreign exchange exposure can access currency futures contracts on several exchanges, including the Tokyo Futures Exchange, the Euronext-Liffe Exchange, and the Chicago Mercantile Exchange. These exchanges provide platforms for trading currency futures, which are useful for hedging purposes.

References:Information about the accessibility of currency futures contracts on these exchanges is available in financial market resources and the "How Finance Works" document​​.

By foreign exchange market convention, spot foreign exchange transactions are typically settled on a T+2 basis, meaning the transactions are exchanged at the spot date based on the two-day rule. This means that the delivery of the currencies involved in the transaction takes place two business days after the trade date. This standard settlement period is used to ensure that there is enough time to manage the administrative tasks associated with the transaction.