Free GARP FRM-Part-2 Exam Questions

The latest on-the-run (OTR) Treasury bond issued on March 1 is trading at a special spread of 0.25%. Traders expect the bond to trade at general collateral (GC) rates past June 30. The financing value of the OTR bond is therefore the value over 122 days.Given this information, the value of lending $100 of cash is closest to:

A credit analyst at an investment firm is estimating the 99% credit VaR of a 1-yearzero-coupon bond, the only debt issued by the firm. The analyst obtains relevantdata presented below:• Face value of the firm’s 1-year zero-coupon bond: CNY 630 million• The bond’s expected 1-year probability of default (PD): 6%• The bond’s 1-year recovery rate: 90%Assuming the variation of the future value of the bond is solely due to the possibilityof default, and the analyst’s estimate of the value of the bond in 1 year at the 99%confidence level is CNY 567 million, what is the bond’s implied 1-year 99% credit VaR?

An operational risk analyst at a large bank is preparing a year-end report of thebank’s operational loss events. The analyst uses the Basel operational risktaxonomy to classify different events into Level 1, Level 2, and Level 3. As part ofthis process, the analyst considers the following four events that occurred during the year:• A sales representative in the lending department forged a senior manager’ssignature to approve an application for a large commercial loan that defaulted.• The bank failed to deliver sufficient collateral to support a swap position,which was later terminated at a loss.• Several managers in the bank’s wealth management group were found tohave misused confidential customer information by sharing this informationwith other employees and a third-party vendor representative.• Some personal customer information was stolen in a cyber-attack in whichan external hacker broke into a database stored in the cloud.In classifying the four events and considering the Basel taxonomy in general, whichof the following actions would be most appropriate for the analyst to take?

Which of the following reasons is least likely a consideration for regulators when imposing fines on financial institutions against financial breaches and violations?

The treasurer of a regional bank is concerned that the bank may not be properlycompensated for the services it provides to its depositors and asks a manager toassess a price for these services. The manager applies cost-plus pricing for alldepository services and uses the following data for pricing the automated tellermachine (ATM) service:• Operating expense per ATM visit: USD 0.25• Estimated overhead cost allocated per ATM visit: USD 0.35• Profit required per ATM visit: USD 0.05• The bank’s target return on capital: 15%What is the correct amount for the bank to charge per ATM visit according to the cost-plus pricing model?