GARP 2016-FRR Exam With Confidence Using Practice Dumps

The market risk management function within a bank encompasses several key roles:

Establish a comprehensive market risk policy framework: This ensures that there are clear guidelines and procedures for managing market risk.

Define, approve, and monitor risk limits: This involves setting boundaries on the levels of risk that can be taken and continuously overseeing them.

Perform stress tests and other qualitative risk assessments: These are conducted to evaluate the bank's resilience to extreme market conditions and to identify potential vulnerabilities.

These activities are crucial for maintaining the bank's overall market risk exposure within acceptable levels.

The value of an option is influenced by several factors, including the perceived volatility of the underlying asset, in this case, foreign exchange rates. As the perceived future volatility of foreign exchange rates increases, the value of all options (both calls and puts) also increases. This is because higher volatility increases the likelihood that the option will end up in-the-money, thereby increasing its potential payoff. This relationship is fundamental to option pricing models, such as the Black-Scholes model, which incorporate volatility as a key input.

A $10,000,000 loan to IBM worth $9,800,000 would most likely not be included in the trading book. Loans held to maturity are generally part of the banking book rather than the trading book, which typically includes assets intended for trading and short-term profit.