Free Access GARP.2016-FRR.v2025-03-20.q179 Practice Test (Page 17)

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

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

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

C.CMOs are generally less risky investment than CDOs.

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

To estimate the forward price of oil, a commodity trader would most likely use the following pricing
relationship:

A.Oil forward price = Expected future oil price ± Oil market risk premium

B.Oil forward price = Expected future oil price ± storage cost + Oil market risk premium

C.Oil forward price = Expected future oil price ± Oil storage cost + (1 - Oil market risk premium)

D.Oil forward price = Expected future oil price ± Oil storage cost + (1 + Oil market risk premium)

Which one of the following four formulas correctly identifies the expected loss for all credit instruments?

A.Expected Loss = Probability of Default x Loss Given Default / Exposure at Default

B.Expected Loss = Probability of Default x Loss Given Default - Exposure at Default

C.Expected Loss = Probability of Default x Loss Given Default x Exposure at Default

D.Expected Loss = Probability of Default x Loss Given Default + Exposure at Default

Which type of risk does a bank incur on loans that are in the "pipeline", i.e loans that are in the process of
origination but not yet originated?

A.Credit Risk only

B.The bank does not incur any risk since the loan is not yet originated

C.Interest rate risk only

D.Interest rate risk and credit risk

A portfolio consists of two floating rate bonds and one fixed rate bond.

Based on the information below, modified duration of this portfolio is

A.2.64

B.3.00

C.4.28

D.4.44

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