Verified 2016-FRR Dumps Q&As - 2016-FRR Test Engine with Correct Answers
Pass Your 2016-FRR Dumps as PDF Updated on 2022 With 345 Questions
NEW QUESTION 81
Bank Omega is using futures contracts on a well capitalized exchange to hedge its market risk exposure.
Which of the following could be reasons that expose the bank to liquidity risk?
I. The bank may not be able to unwind the futures contracts before expiration.
II. Prices may move such that a loss results on the hedge.
III. Since futures require margins which are settled every day, the bank could find itself scrambling for funds.
IV. Exchange margin requirements could change unexpectedly.
- A. I, III, IV
- B. I, IV
- C. I, II, III, IV
- D. III, IV
Answer: D
NEW QUESTION 82
Which one of the following four features is NOT a typical characteristic of futures contracts?
- A. Fixed notional amount per contract
- B. Fixed dates for delivery
- C. Traded Over-the-counter only
- D. Daily margin calls
Answer: C
NEW QUESTION 83
The value of which one of the following four option types is typically dependent on both the final price of its
underlying asset and its own price history?
- A. Chooser options
- B. Stout options
- C. Basket options
- D. Power options
Answer: B
NEW QUESTION 84
In the United States, stock investors must comply with the Regulation T of the Federal Reserve Bank and may
borrow up to ___ of the value of the securities from their brokers.
- A. 40%
- B. 50%
- C. 30%
- D. 60%
Answer: B
NEW QUESTION 85
What is a difference between currency swaps and interest rate swaps?
- A. Currency swaps generate foreign exchange rate risk in addition to interest rate risk.
- B. Currency swaps allow banks and customers to obtain the risk/reward profile of long-term interest rates
without having to use long-term funding. - C. Currency swaps are OTC derivative contracts.
- D. Currency swaps do not require the exchange of notional principal on maturity.
Answer: A
NEW QUESTION 86
Which of the following reports have been suggested by the FDIC that banks should produce in addition to the
usual probabilistic analysis and stress tests in order to gauge liquidity issues?
I. Cash flow gaps
II. Funding availability
III. Critical assumptions used in credit projections
- A. I
- B. I, III
- C. I, II, III
- D. I, II
Answer: C
NEW QUESTION 87
To achieve leverage in long positions, a bank can use the following strategy:
I. Securities may be purchased with borrowed funds using a bank loan from the broker.
II. Securities may be borrowed on margin by taking a loan from a broker.
III. Securities may be purchased and used in a repo transaction to generate cash for further security purchases.
IV. The bank may enter into a derivative transaction, such as a total return swap, that requires little to no
collateral but mimics the performance of a long or short position in the underlying instrument.
- A. II, IV
- B. I, III
- C. I, II, III, IV
- D. I, II
Answer: C
NEW QUESTION 88
Which one of the following four statements regarding commodity derivative risks is INCORRECT?
- A. In most commodities, the longest term contracts are the most volatile, while the shortest term forward
contract are the least volatile. - B. Because of the different demand/supply balance in each region and the cost of transporting the oil
between regions, a tanker of Brent crude oil in the UK will have a different value to a UK buyer than a
tanker of Arab light crude oil in Singapore, which results in the basis risk. - C. Some commodities can be both in backwardation and a have a strong seasonal element.
- D. Calendar spreads represent a special case of basis risk and occur when the relative prices of commodity
futures do not come in alignment and the trader becomes exposed to the absolute price movements.
Answer: A
NEW QUESTION 89
James Johnson manages a bond portfolio with all investment grade bonds. Adding which of the following
bonds would minimize the credit risk of his portfolio?
- A. A
- B. C
- C. D
- D. B
Answer: A
NEW QUESTION 90
Returns on two assets show very strong positive linear relationship. Their correlation should be closest to
which of the following choices?
- A. 15%
- B. 100%
- C. 45%
- D. 60%
Answer: B
NEW QUESTION 91
When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the
likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no
credit losses.
- A. Asymmetric; less
- B. Symmetric; greater
- C. Asymmetric; greater
- D. Symmetric; less
Answer: C
NEW QUESTION 92
Floating rate bonds typically have ________ duration which means they have ________ sensitivity to interest
rate changes.
- A. long, high
- B. short, high
- C. long, small
- D. short, small
Answer: D
NEW QUESTION 93
Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading
strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should
Unico take to limit its risk exposure?
- A. A covering strategy that manages positions in the product by executing covering deals or hedging deal at
the discretion of the trading des. - B. A market-maker strategy that allows the traders to quote a buy and sell price to customers and other
banks and to trade at the relevant price on the sell side of the market. - C. A matched book strategy that allows the trading desk to match all customer positions immediately with
an equal and opposite position by trading internally or with another bank. - D. A passive hedging strategy that allows the traders to price transactions with customers and other banks,
at the relevant bid price on the market.
Answer: C
NEW QUESTION 94
Using a forward transaction, Omega Bank buys 100 metric tones of aluminum for delivery in six-months' time.
However, after two months, the bank becomes concerned with the potential fluctuations in aluminum prices
and wants to hedge its potential exposure against a possible decline in aluminum prices. Which one of the
following four strategies could the bank use to offset the risk from its current exposure to aluminum as it sets
the price for selling the commodity in four-months' time?
- A. Sell an aluminum forward contract
- B. Buy an aluminum forward contract
- C. Buy an aluminum futures contract
- D. Sell an aluminum futures contract
Answer: D
NEW QUESTION 95
For two variables, which of the following is equal to the average product of the deviations from their
respective means?
- A. Correlation
- B. Standard deviation
- C. Kurtosis
- D. Covariance
Answer: D
NEW QUESTION 96
The main building blocks of an operational risk framework include all of the following options EXCEPT:
- A. Loss data collection
- B. Risk and control self-assessment
- C. Scenario analysis
- D. Compliance document preparation
Answer: D
NEW QUESTION 97
Which of the following statements about parametric and nonparametric methods for calculating Value-at-risk
is correct?
- A. Parametric methods make no assumptions about return distributions, and non-parametric methods
assume returns are normally distributed. - B. Parametric methods generally assume returns are normally distributed, and non-parametric methods
make no assumptions about return distributions. - C. Both parametric and nonparametric methods assume returns are normally distributed.
- D. Both parametric and nonparametric methods make no assumptions about return distributions.
Answer: B
NEW QUESTION 98
Alpha Bank, a small bank,has a long position with larger BetaBank and has an identical short position with
another larger bank GammaBank. Each large bank requires a 20% initial collateral to support the trade. As
prices fluctuate in either direction, one large bank will require additional collateral from the small bank, while
the risk of loss to the other large bank will increase. By running the trades through a clearinghouse, the small
bank can achieve all of the following objectives EXCEPT:
- A. Eliminating the collateral requirement
- B. Mitigating option hedging risks and altering margin requirement
- C. Protecting itself against increases in future collateral demands
- D. Protecting against the risk of the failure of one of the large banks
Answer: B
NEW QUESTION 99
Which one of the four following statements about technology systems for managing operational risk event
data is incorrect?
- A. The implementation of a new operational risk event loss database has to incorporate an analysis of the
advantages and disadvantages of external systems. - B. Operational risk event databases are always integrated with the other components of the operational risk
management program. - C. Operational risk event databases are independent elements of the operational risk management
framework. - D. Operational risk loss event data collection software can be internally developed.
Answer: B
NEW QUESTION 100
A large multinational bank is concerned that their duration measures may not be accurate since the yield curve
shifts are not parallel. Which of the following statements would be typically observed regarding variability of
interest rates?
- A. Short-term rates are more variable than long-term rates.
- B. Short-term rates are less variable than long-term rates.
- C. Short-term rates and long-term rates always move in opposite directions.
- D. Short-term rates are equally variable as long-term rates.
Answer: A
NEW QUESTION 101
Which one of the following four global markets for financial assets or instruments is widely believed to be the
most liquid?
- A. Commodities market
- B. Foreign exchange market.
- C. Fixed income market
- D. Equity market.
Answer: B
NEW QUESTION 102
The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential failure
of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed,
the principal and the contractual interest payments, would be called ___.
- A. Performance risk; credit risk
- B. Market risk; credit risk
- C. Credit risk; performance risk
- D. Credit risk; market risk
Answer: A
NEW QUESTION 103
What is generally true of the relationship between a bond's yield and it's time to maturity when the yield curve
is upward sloping?
- A. The longer the time to maturity of the bond, the lower its yield.
- B. The shorter the time to maturity of the bond, the higher its yield.
- C. The longer the time to maturity of the bond, the higher its yield.
- D. There is no relationship between the two
Answer: C
NEW QUESTION 104
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