Free GARP FRM-Part-2 Exam Questions

A bank treasurer is seeking to identify the most appropriate investment maturitystrategy to apply considering the status of its balance sheet and the economicconditions it is currently facing. The treasurer gathers the following information:• The bank faces a high interest rate environment with a flat yield curve.• The bank’s asset mix includes a high proportion of US Treasury bondspurchased years ago when interest rates were significantly lower.• The bank has a high proportion of revenues from loans and anticipates arecord high level of profitability this year.Which of the following strategies would be the most appropriate for the bank to takein order to maintain its current level of total income?

An analyst at a financial institution has been asked to assess the quality ofestimating credit VaR (CVaR) of a homogenous portfolio of firms (credits) using thesingle-factor model, under which default correlation varies with the firm’s beta to themarket factor. The analyst examines the portfolio under the following assumptions:• There are 1,000 firms (credits) in the portfolio.• Each firm represents 0.1% of the portfolio.• There is no idiosyncratic risk.• Loss given default is the same for each firm in the portfolio.Based on the information provided, which of the following observations, if made bythe analyst, would be correct regarding the application of the single-factor model and its parameters?

A pension fund has $100,000 in assets and $90,000 in liabilities. Assume that theexpected return on the surplus is 5%, and the annual VaR of the surplus is 22% at the 99%confidence level.The initial surplus of the fund is equal to:

Which of the following trading instruments would have the most beneficial effect on netting?

An analyst at a commercial bank is evaluating how the bank applies historicalsimulation (HS) to estimate VaR and ES. The analyst focuses on the approachesused for weighting past return observations, including the age-weighted, volatilityweighted,correlation-weighted, and filtered HS approaches. Which of the followingstatements is correct regarding the given weighting approach?