Free Access GARP.2016-FRR.v2022-02-19.q125 Practice Test (Page 8)

Question 31

Which of the following factors would typically increase the credit spread?
I. Increase in the probability of default of the issuer.
II. Decrease in risk premium.
III. Decrease in loss given default of the issuer.
IV. Increase in expected loss.

A.II and III

B.I, II, and IV

C.I

D.I and IV

Question 32

Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading
strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should
Unico take to limit its risk exposure?

A.A market-maker strategy that allows the traders to quote a buy and sell price to customers and other
banks and to trade at the relevant price on the sell side of the market.

B.A covering strategy that manages positions in the product by executing covering deals or hedging deal at
the discretion of the trading des.

C.A matched book strategy that allows the trading desk to match all customer positions immediately with
an equal and opposite position by trading internally or with another bank.

D.A passive hedging strategy that allows the traders to price transactions with customers and other banks,
at the relevant bid price on the market.

Question 33

Which of the following statements describes a bank's reasons to set risk limits?
I. To control and minimize a bank's current risk exposure.
II. To predict future risks.
III. To allocate risks to business units.
IV. To keep risk within tolerance levels.

A.I, II, and III

B.I and II

C.III and IV

D.I, III, and IV

Question 34

Which one of the four following statements about drawdowns is correct?

A.Drawdown estimates the effect on bank's liabilities when the bank's credit rating is cut.

B.Drawdown measures the aggregate decline in market values of assets and positions due to a shock.

C.Drawdown calculates significant losses in a particular business or a book.

D.Drawdown quantifies the peak-to-trough decline of an investment over a known time period.

Question 35

If the yield on the 3-month risk free bonds issued by the U.S government is 0.5%, and the 3-month LIBOR
rate is 2.5%, what is the TED spread?

A.2.0%

B.3.0%

C.-2.0%

D.0.5%

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Question 31

Question 32

Question 33

Question 34

Question 35

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