GARP 2016-FRR Exam With Confidence Using Practice Dumps

The Basel II Accord addresses several aspects of legal risk including exposure to fines, private settlements, and punitive damages resulting from supervisory actions. However, it does not explicitly include negative publicity resulting from reputational damages. Legal risk under Basel II is primarily focused on tangible financial impacts rather than reputational ones.

In the context of options trading, delta hedging involves managing the delta (rate of change of the option's price with respect to changes in the underlying asset's price) to be neutral.

Options premium: Represents the cost paid to eliminate execution risk associated with sudden market moves (gapping markets).

Execution risk: The risk of being unable to adjust positions quickly enough in response to market changes.

By purchasing options, the trader removes the risk of needing to adjust a delta-neutral position during large market movements. The premium paid is the cost of this protection.

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Source: How Finance Works​

Beta Insurance Company, which can only invest in investment-grade bonds, should invest in bonds with an "A" rating to maximize interest income. Investment-grade bonds are rated from AAA to BBB. While AAA bonds offer the highest credit quality, they also offer the lowest yield. Bonds rated A offer a good balance between credit quality and higher interest income compared to AAA and AA bonds.