Free Access GARP.2016-FRR.v2022-02-19.q125 Practice Test (Page 11)

Question 46

Which one of the following four formulas correctly identifies the expected loss for all credit instruments?

A.Expected Loss = Probability of Default x Loss Given Default x Exposure at Default

B.Expected Loss = Probability of Default x Loss Given Default + Exposure at Default

C.Expected Loss = Probability of Default x Loss Given Default / Exposure at Default

D.Expected Loss = Probability of Default x Loss Given Default - Exposure at Default

Question 47

Beta Insurance Company is only allowed to invest in investment grade bonds. To maximize the interest
income, Beta Insurance Company should invest in bonds with which of the following ratings?

A.AAA

B.A

C.AA

D.B

Question 48

Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a
foreign exchange option?

A.Underlying exchange rates

B.Underlying interest rates

C.Discrete future stock prices

D.Option exercise price

Question 49

Which of the following statements is a key difference between customer loans and interbank loans?

A.Customer loans are of shorter duration than interbank loans

B.Customers are less credit-worthy than banks on average and hence yields are higher on average for
customer loans as compared to interbank loans

C.Interbank loans are more customized than commercial loans

D.Customer loans are easier to sell than interbank loans

Question 50

James Johnson has a $1 million long position in ThetaGroup with a VaR of 0.3 million, and $1 million long
position in VolgaCorp with a VaR of 0.4 million. The returns of the two companies have zero correlation.
What is the portfolio VaR?

A.$0.7 million

B.$1 million

C.$0.5 million

D.$0.4 million

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Question 46

Question 47

Question 48

Question 49

Question 50

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