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GARP International Certificate in Banking Risk and Regulation (ICBRR) Sample Questions:

1. Bank customers traditionally trade commodity futures with banks in order to achieve which of the following goals?
I. To express their own price views
II. To reverse undesired short-term exposure created from fixed commodity sales
III.
To reach short-term budgetary targets

A) I
B) I, II, III
C) II
D) I, III

2. Which one of the following four exercise features is typical for the most exchange-traded equity options?

A) A shout option exercise feature
B) Asian exercise feature
C) European exercise feature
D) American exercise feature

3. Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta defaults, the bank expects to lose 50% of its promised payment.
What may happen to the Delta's initial credit parameter and the value of its loan if the machinery industry experiences adverse structural changes?

A) Probability of default and loss at default may decrease simultaneously, while duration rises causing the loan value to decrease.
B) Probability of default and loss at default may decrease simultaneously, while duration falls causing the loan value to decrease.
C) Probability of default and loss at default may increase simultaneously, while duration falls causing the loan value to decrease.
D) Probability of default and loss at default may increase simultaneously, while duration rises causing the loan value to decrease.

4. What are the add-on losses faced by a bank that is going bankrupt?
I. The discount accepted by the bank for selling its assets in a fire sale.
II. The increased cost of funding liabilities in a financially distressed situation.
III. The reduction in the present value of future growth opportunities.
IV.
Loss of goodwill and intangible assets.

A) II, III, IV
B) III, IV
C) I, II, III, IV.
D) I, II

5. Which of the following statements defines Value-at-risk (VaR)?

A) VaR is the maximum of past losses over a given period of time.
B) VaR is the minimum likely loss on a financial instrument or a portfolio of financial instruments with a given degree of probabilistic confidence.
C) VaR is the maximum likely loss on a financial instrument or a portfolio of financial instruments over a given time period with a given degree of probabilistic confidence.
D) VaR is the worst possible loss on a financial instrument or a portfolio of financial instruments over a given time period.

Solutions: