Free Access GARP.2016-FRR.v2022-08-09.q102 Practice Test (Page 5)

Question 16

Jack Richardson wants to compute the 1-month VaR of a portfolio with a market value of USD 10 million,
with an average monthly return of 1% and average monthly standard deviation of 1.5%. What is the portfolio
VaR at 99% confidence level?
Probability Cumulative Normal distribution
0.90 1.282
0.91 1.341
0.92 1.405
0.93 1.476
0.94 1.555
0.95 1.645
0.96 1.751
0.97 1.881
0.98 2.054
0.99 2.326

A.246,750

B.232,600

C.164,500

D.348,900

Question 17

Samuel Teng owns a portfolio of bonds and is trying to compute the convexity of his portfolio. Which of the
following choices equals the convexity of Samuel's portfolio?

A.Value-weighted average convexity of the component bonds

B.Coupon-weighted average convexity of the component bonds

C.Minimum of the convexities of the component bonds

D.Maximum of the convexities of the component bonds

Question 18

Which of the following bank events could stress the bank's liquidity position?
I. Obligations to fund assets like mortgages
II. Unusually large depositor withdrawals
III. Counterparty collateral calls
IV. Nonperforming assets

A.III, IV

B.I, II

C.IV

D.I, II, III and IV

Question 19

Which one of the following four options does NOT represent a benefit of compensating balances to the bank?

A.Compensating balances allow the bank to net some of the exposure they may have in case of default, by
taking funds from these specific deposit account one the borrower defaults.

B.Since the compensating balances cannot be withdrawn at short notice, if at all, they are not considered
transaction accounts and are able to provide a stable funding to the bank, reducing its reliance on more
volatile external inter-bank based funding sources.

C.Compensation balances influence the expected loss rate of the bank given the default obligor and
improve capital structure by controlling obligor type and avoiding payment delays.

D.Since the compensating balances reduce the next amount lent to the borrower, the earned return on the
loan is increased, further widening the bank's interest rate margin and profitability.

Question 20

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

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

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