2016-FRR GARP Exam Lab Questions

A customer asks a broker employed by AlphaBank to buy Eureka Corporation bonds for her account. While this trade was executed correctly and the bonds were bought, the trade was mistakenly accounted for as a sell order. If the price of Eureka Corporation bonds goes up, this trade would result in a significantly larger loss than if the market had remained stable. However, if the market drops, the customer will benefit from the incorrect accounting and gain from this trade. This trading scenario can serve as an example that

An asset and liability manager for a large financial institution has to recognize that retail products ___ include embedded options, which are often not rationally exercised, while wholesale products ___ carry penalties for repayment or include rights to terminate wholesale contracts on very different terms than are common in retail products.

An asset-sensitive bank will have a ___ cumulative gap and will benefit from ___ interest rates.

DeltaFin wants to develop a control scoring method for its RCSA program. Which of the following statements regarding scoring methods are correct?

I. DeltaFin can develop a control scoring method that assesses both the design and the performance of the control.

II. DeltaFin can combine the design and performance scores for each control to produce an overall control effectiveness score.

III. DeltaFin can use the control performance scores to compute an overall risk severity score.

IV. DeltaFin can determine its own appropriate control scoring method.