GARP 2016-FRR Exam With Confidence Using Practice Dumps

Moral hazard occurs when one party in a contractual relationship can take risks because the consequences of those risks will be borne by another party. In this scenario, the credit associate is concerned that the obligor might use the loan proceeds for purposes not sanctioned by the lender, thereby increasing the risk of default. This situation is a classic example of moral hazard, where the obligor's behavior after receiving the loan could change in a way that increases the lender's risk without the lender having control over those actions.

Option A:The loss data entry must include the actual loss amount.

Correct as it ensures accurate financial impact recording.

Option B:The loss data program must comprehensively capture all material activities.

Correct, necessary for a thorough risk management program.

Option C:The loss data entry should only include the date when the event was reported.

Incorrect, as it is essential to capture both the event date and the report date to understand the timeline of the incident.

Option D:The loss data entry may include descriptive information about the drivers or causes of the loss event.

Correct, as it provides context and insights into the root causes, aiding in risk analysis and prevention.

The TED spread is calculated as the difference between the interest rates on interbank loans and short-term U.S. government debt (T-bills). Specifically, the TED spread = LIBOR - Treasury bill rate. In this case, the 3-month LIBOR rate is 2.5% and the yield on the 3-month U.S. Treasury bill is 0.5%. Thus, the TED spread is 2.5% - 0.5% = 2.0%.