Complete 2016-FRR GARP Materials

Financial Risk and Regulation (FRR) Series Questions and Answers

Question 37

As DeltaBank explores the securitization business, it is most likely to embrace securitization to:

I. Bring transparency to the bank's balance sheet

II. Create a new profit center for the bank

III. Strategically release risk capital and regulatory capital for redeployment

IV. Generate cash for additional debt origination

I, III

II, IV

I, II, III

II, III, IV

Question 38

For which one of the following four reasons do corporate customers use foreign exchange derivatives?

I. To lock in the current value of foreign-denominated receivables

II. To lock in the current value of foreign-denominated payables

III. To lock in the value of expected future foreign-denominated receivables

IV. To lock in the value of expected future foreign-denominated payables

I and IV

II and III

I, II, III, IV

Question 39

Which one of the following four statements correctly defines credit risk?

Credit risk is the risk that complements market and liquidity risks.

Credit risk is a form of performance risk in contractual relationship.

Credit risk is the risk arising from execution of a company's strategy.

Credit risk is the risk that summarizes the exposures a company or firm assumes when it attempts to operate within a given field or industry.

Question 40

What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?

The long term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

The long term rates must rise enough to get some borrowers to borrow long-term and some lenders to lend short-term.

The short term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

The short term rates must fall enough to get some borrowers to borrow long-term and some lenders to lend short-term.