Free GARP FRM-Part-2 Exam Questions

Assume a sovereign bond has a haircut of 5% and is used for a collateral call of $100,000. What amount is credited if a $100,000 bond is submitted, and what amount of bond is needed for $100,000 to be credited, respectively?

A fixed-income portfolio manager is conducting a performance analysis on anagency-MBS and the underlying pool of commercial mortgages. The managerobtains the following information:• The constant prepayment rate (CPR) of the commercial mortgages loan pool: 14.38%• Debt payments per year on the commercial mortgage loans: USD 730,000• Net operating income per year of the commercial mortgage property: USD 1,825,000The manager uses the following metrics as benchmarks for the commercial mortgage sector analysis:• Debt service coverage ratio (DSCR) of a benchmark obligor: 2.5• Single monthly mortality (SMM) rate of a benchmark security: 0.85%Which of the following statements is correct?

A senior risk analyst at VLT Bank (VLTB), a Singapore-based bank, is analyzing therisks arising from a significant appreciation of the SGD against all other major worldcurrencies. VLTB has the following balance sheet structure:▪ Assets:• Germany government bonds denominated in EUR• Singapore government bonds denominated in SGD• Corporate bonds denominated in EUR• Commercial loans denominated in SGD▪ Liabilities:• Long-term senior bonds denominated in EUR• Long-term senior bonds denominated in SGD• Retail deposits denominated in SGD• Corporate term deposits denominated in SGDThe analyst considers other recent market developments, including a decline inglobal equity prices, which resulted in many of VLTB’s larger retail depositorsexperiencing margin calls and drawing down deposits to meet them. The analystnotes that the bank took advantage of the demand for fixed-income securities andissued additional long-term senior SGD bonds and the proceed was used topurchase additional Germany government bonds. The overall impact of thesetransactions on VLTB is that the bank’s net cash outflows during the month, itsoverall net liabilities flow, and the required amount of stable funding, remainunchanged. The following additional information is provided:• The available stable funding (ASF) factor for retail deposits is 95%.• The ASF factor for long-term senior SGD bonds is 100%.The analyst also assesses the bank’s exposure to ConSol Corp, a publicly tradedSingapore manufacturer that is heavily dependent on locally produced raw materialsand generates its revenues primarily in EUR. VLTB is a major holder of ConSolCorp’s EUR-denominated bonds and has taken a long CDS position on the bonds.A German bank is the counterparty to that CDS contract.In analyzing the impact of the reported developments in the currency, equity, andbond markets on VLTB, which of the following is correct?

All of the following items are generally considered advantages of non-parametric estimation methods except:

A junior risk analyst at a consulting firm is reviewing the operational arrangements of bilateral netting and central clearing of derivative trades. The analyst examines the following bilateral trades of three firms:• Firm 1’s exposure to Firm 2: AUD 90 million• Firm 2’s exposure to Firm 1: AUD 60 million• Firm 1’s exposure to Firm 3: AUD 12 million• Firm 3’s exposure to Firm 1: AUD 70 million• Firm 2’s exposure to Firm 3: AUD 57 million• Firm 3’s exposure to Firm 2: AUD 0 millionWhich of the following statements is correct?