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As the financial industry continues to grow and expand, so too does the need for qualified professionals who possess specialized knowledge in financial risk and regulation. The Global Association of Risk Professionals (GARP) recognizes this need and has developed the GARP 2016-FRR (Financial Risk and Regulation Series) certification exam to ensure that those working in the industry possess the necessary skills and knowledge.

GARP 2016-FRR series is divided into two parts. The first part consists of a theoretical test that covers critical topics such as market risk, credit risk, operational risk, and regulatory compliance. The second part, on the other hand, focuses on the application of these concepts in real-life financial scenarios. It is designed to assess the practical skills and knowledge of the candidates for the role of risk managers, financial analysts, or regulatory compliance officers. Overall, the GARP 2016-FRR Exam is a comprehensive assessment of the candidate's ability to navigate the changing financial landscape and maintain integrity in the face of market risks and challenges.

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GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q352-Q357):

NEW QUESTION # 352
A trader for EtaBank wants to take a leveraged position in Collateralized Debt Obligations. These CDOs can
be used in a repurchase transaction at a 20% haircut. Starting with $100 worth of CDOs, which one of the
following four positions would completely utilize the available leverage?

A. The trader can buy $100 in CDO's, and repo the CDO's to get back $60, plus interest.
B. The trader can buy $100 in CDO's, and repo the CDO's to get back $80, less interest.
C. The trader can buy $100 in CDO's, and repo the CDO's to get back $100, less interest.
D. The trader can buy $100 in CDO's, and repo the CDO's to get back $20, plus interest.

Answer: B

NEW QUESTION # 353
A bank considers issuing new capital to increase its Tier 1 capital levels. Which of the following financial instruments would most likely to be considered?

A. Short-term debt convertible to non-cumulative preferred shares
B. Convertible preferred shares
C. Short-term callable debt
D. Long-term and callable debt convertible to equity

Answer: B

Explanation:
When a bank looks to issue new capital to increase its Tier 1 capital levels, the following instrument is most likely considered:
* Convertible Preferred Shares: These shares can be converted into common stock. They are considered part of Tier 1 capital because they have characteristics of equity, such as absorbing losses while the bank remains a going concern.
Long-term and callable debt, short-term callable debt, and short-term debt convertible to non-cumulative preferred shares do not typically qualify as Tier 1 capital because they do not provide the same level of loss absorption as equity instruments.References: How Finance Works, sections discussing the components of Tier
1 capital and the suitability of different financial instruments.

NEW QUESTION # 354
Since most consumers of natural gas do not have the ability to store it, they contract with gas suppliers to receive a flow of natural gas equal to a specific number of MMBT's per day (MMBT is millions of British Termal Units, the unit in which gas futures are quoted on the U.S. markets). To protect against price increases with a bank, the natural gas consumer, concerned with the average price over the course of the month, will use the following contracts:

A. American options
B. Asian options
C. Compound options
D. Flexible volume options

Answer: B

Explanation:
* Asian options are a type of option where the payoff depends on the average price of the underlying asset over a certain period.
* This characteristic makes them suitable for consumers who want to hedge against price fluctuations over a period rather than at a single point in time.
* For a natural gas consumer concerned with the average price over the course of a month, Asian options provide the necessary hedging mechanism.

NEW QUESTION # 355
Which one of the following four formulas correctly identifies the expected loss for all credit instruments?

A. Expected Loss = Probability of Default x Loss Given Default / Exposure at Default
B. Expected Loss = Probability of Default x Loss Given Default + Exposure at Default
C. Expected Loss = Probability of Default x Loss Given Default - Exposure at Default
D. Expected Loss = Probability of Default x Loss Given Default x Exposure at Default

Answer: D

Explanation:
* The expected loss (EL) on a credit instrument is calculated by multiplying the probability of default (PD), the loss given default (LGD), and the exposure at default (EAD). This formula captures the risk of default and the potential loss severity.
* Other options (B, C, D) incorrectly represent the relationship between these components.
References:
* How Finance Works: "Expected Loss = Probability of Default x Loss Given Default x Exposure at Default"

NEW QUESTION # 356
If the yield on the 3-month risk free bonds issued by the U.S government is 0.5%, and the 3-month LIBOR
rate is 2.5%, what is the TED spread?

A. -2.0%
B. 2.0%
C. 3.0%
D. 0.5%

Answer: B

NEW QUESTION # 357
......

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