Free Access GARP.2016-FRR.v2022-02-19.q125 Practice Test (Page 9)

Question 36

Suppose Delta Bank enters into a number of long-term commercial and retail loans at fixed rate prevailing at
the time the loans are originated. If the interest rates rise:

A.The bank will have to pay higher interest rates to its depositors and would have to pay higher rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans.

B.The bank will have to pay higher interest rates to its depositors and would have to pay lower rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans.

C.The bank will have to pay lower interest rates to its depositors and would have to pay lower rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans.

D.The bank will have to pay lower interest rates to its depositors and would have to pay higher rates on its
debt to the extent the debt interest rate was linked to floating indices, or to the extent the debt used to
fund the loans was of a shorter maturity than the loans.

Question 37

Which one of the following four statements correctly defines an option's delta?

A.Delta measures the effect of 1 bp in interest rate change on the option price.

B.Delta measures the expected decline in option with time and is usually expressed in years.

C.Delta is the multiplier that best approximates the short-term change in the value of an option.

D.Delta measures the impact of volatility on the price of an option.

Question 38

Which one of the following four statements about the relationship between exchange rates and option values is
correct?

A.As the dollar appreciates relative to the pound, the right to sell dollars at a fixed pound exchange rate
increases.

B.As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases.

C.As the dollar appreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
decreases.

D.As the dollar depreciates relative to the pound, the right to buy dollars at a fixed pound exchange rate
increases.

Question 39

Which of the following statements about endogenous and exogenous types of liquidity are accurate?
I. Endogenous liquidity is the liquidity inherent in the bank's assets themselves.
II. Exogenous liquidity is the liquidity provided by the bank's liquidity structure to fund its assets and maturing
liabilities.
III. Exogenous liquidity is the non-contractual and contingent capital supplied by investors to support the bank
in times of liquidity stress.
IV. Endogenous liquidity is the same as funding liquidity.

A.II, III

B.I, II

C.I, II, IV

D.I, III

Question 40

Which one of the following statements regarding collateralized mortgage obligations (CMO) is incorrect?

A.CMOs are asset-backed securities that have pools of collateralized debt obligations (CDOs) as
underlying collateral.

B.CMOs are pools of mortgages that are divided according to the timing of cash flows.

C.CMOs are generally less risky investment than CDOs.

D.CMOs have senior tranches which are considered short-term, low-risk instruments by banks

Other Version: 674GARP.2016-FRR.v2025-03-20.q179; 845GARP.2016-FRR.v2024-05-06.q106; 2454GARP.2016-FRR.v2022-08-09.q102; 2849GARP.2016-FRR.v2022-06-22.q122; 83GARP.Prepawayete.2016-FRR.v2021-12-06.by.brook.124q.pdf

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Question 36

Question 37

Question 38

Question 39

Question 40

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