Free GARP FRM-Part-1 Exam Questions

Call and put option values are most sensitive to changes in the volatility of the underlying when:

A bank has entered into a 3 x 6 forward rate agreement to receive a xed rate of 3.35 percent on $12 million in six months. If the applicable rate in three months is 3.62 percent, the cash ow associated with this forward rate agreement for the bank would be closest to:

A market risk analyst at a regional bank is calculating the annual VaR of portfolio of investment securities. The portfolio has a current market value of USD 3,700,000 with a daily variance of 0.0004. Assuming there are 250 trading days in a year and the daily portfolio returns are independent and follow the same normal distribution with a mean of zero, what is the estimate of the 1-year VaR at the 95% confidence level?

Regarding the conditions for model selection criteria to demonstrate consistency, which of the following statements is true?I. The most consistent selection criteria with the greatest penalty factor for degrees of freedom is unbiased mean squared error.II. If we consider the fact that the true model may be much more complicated than the models under consideration, then the Akaike information criterion (AIC) measure should be examined.

A risk analyst uses the bootstrap method to assess the market risk of a global equity portfolio that experienced significant volatility in the recent past. The analyst applies independent and identically distributed (IID) bootstrapping to the extracted standardized residuals of the fitted model, and these bootstrapped standardized residuals are then used to generate time paths of future asset returns. In the final step, the simulated data is used to estimate the VaR of the global equity portfolio over a 1-month horizon. Which of the following will the analyst find to be correct when applying the IID bootstrap method?