Free Access GARP.2016-FRR.v2022-08-09.q102 Practice Test (Page 11)

Question 46

Which one of the following four statements regarding counterparty credit risk is INCORRECT?

A.Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its
default.

B.Dynamic collateral provisions often increase counterparty risk considerably.

C.The exposure at default is variable due to fluctuations in swap valuations.

D.The exposure at default can be negatively correlated to probability of default.

Question 47

Which one of the following four statements about hedging is INCORRECT?

A.For a fully hedged portfolio, any changes in markets prices will typically produce significant changes in
the market value of the portfolio.

B.Traders can hedge their risks by taking an appropriate position in the underlying instrument.

C.Traders can hedge their portfolio risks by taking a position in a different instrument.

D.A large number of hedge positions is generally required to match the underlying transaction completely.

Question 48

Which one of the following four models is typically used to grade the obligations of small- and medium-size
enterprises?

A.Historical frequency models

B.Credit rating models

C.Credit scoring models

D.Causal models

Question 49

Arnold Wu owns a floating rate bond. He is concerned that the rates may fall in the future decreasing his
payment amount. Which of the following instruments should he buy to hedge against the fall in interest rates?

A.Interest rate swap that receives floating and pays fixed

B.Interest rate floor

C.Interest rate cap

D.Index amortizing swap

Question 50

BetaFin, a financial services firm, does not have retail branches, but has fixed income, equity, and asset
management divisions. Which one of the four following risk and control self-assessment (RCSA) methods fits
the firm's operational risk framework the best?

A.RCSA workshop approach

B.RCSA loss data approach

C.RCSA scenario analysis approach

D.RCSA questionnaire approach

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Question 46

Question 47

Question 48

Question 49

Question 50

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