GARP 2016-FRR Exam With Confidence Using Practice Dumps

From the bank's point of view, repricing the retail debt portfolio introduces risks primarily related to fluctuations in interest rates and bank spreads. When interest rates change, the cost of funds for the bank can fluctuate, which affects the interest margins (bank spreads). Additionally, the repricing of existing debt to match current market rates introduces direct exposure to interest rate volatility. Therefore, the risks associated with fluctuations in these areas are III. Interest rates and IV. Bank spreads.

To hedge a bond portfolio against small parallel shifts in the term structure, you need to take a position in an instrument with an equal and opposite duration. John has a bond portfolio worth $2 million with a duration of 10. To hedge this, he should take a short position in bonds worth $20 million with a duration of 1. This is because the product of the value and duration of the hedge position should equal the product of the value and duration of the original portfolio (2 million * 10 = 20 million * 1).

Comprehensive and Detailed In-Depth Explanation:

In a single-name Credit Default Swap (CDS), the protection seller (who assumes the credit risk) often posts collateral to the buyer to mitigate counterparty risk. The amount of collateral is typically determined by:

Credit standing of the protection seller:If the seller’s creditworthiness declines (e.g., lower credit rating), more collateral is required to secure the buyer against the seller’s potential default.