Free Access GARP.2016-FRR.v2022-02-19.q125 Practice Test (Page 17)

Question 76

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.I, II, III, IV

B.I, II

C.II, III

D.III, IV

Question 77

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 sell the real at the market rate of 100 and receive AUD 1,000,000.

C.Immediately buy the real above the market rate of 105 and pay AUD 1,050,050.

D.Immediately buy the real at the market rate of 100 and pay AUD 1,000,000.

Question 78

What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?

A.The short term rates must rise enough to get some borrowers to borrow short-term and some lenders to
lend long-term.

B.The short term rates must fall enough to get some borrowers to borrow long-term and some lenders to
lend short-term.

C.The long term rates must rise enough to get some borrowers to borrow long-term and some lenders to
lend short-term.

D.The long term rates must rise enough to get some borrowers to borrow short-term and some lenders to
lend long-term.

Question 79

Foreign exchange rates are determined by various factors. Considering the drivers of exchange rates, which
one of the following changes would most likely strengthen the value of the USD against other foreign
currencies?

A.The US current account surplus increases

B.The global demand for US products decreases

C.The expected US inflation rate increases

D.The economic performance in the US weakens

Question 80

Which one of the following four global markets for financial assets or instruments is widely believed to be the
most liquid?

A.Fixed income market

B.Equity market.

C.Commodities market

D.Foreign exchange market.

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