Free 2016-FRR Exam Braindumps (page: 33)

Page 33 of 86

James Arthur is a customer of a bank who has taken a floating rate loan from the bank. He is concerned that the rates may rise in the future increasing his payment amount.
Which of the following instruments should he buy to hedge against the rise in interest rates?

  1. Interest rate floor
  2. Interest rate cap
  3. Index amortizing swap
  4. Interest rate swap that receives fixed and pays floating

Answer(s): B



Which of the following statements about parametric and nonparametric methods for calculating Value-at-risk is correct?

  1. Parametric methods generally assume returns are normally distributed, and non-parametric methods make no assumptions about return distributions.
  2. Parametric methods make no assumptions about return distributions, and non-parametric methods assume returns are normally distributed.
  3. Both parametric and nonparametric methods assume returns are normally distributed.
  4. Both parametric and nonparametric methods make no assumptions about return distributions.

Answer(s): A



Since most consumers of natural gas do not have the ability to store it, they contract with gas suppliers to receive a flow of natural gas equal to a specific number of MMBT's per day (MMBT is millions of British Termal Units, the unit in which gas futures are quoted on the U.S. markets). To protect against price increases with a bank, the natural gas consumer, concerned with the average price over the course of the month, will use the following contracts:

  1. American options
  2. Asian options
  3. Compound options
  4. Flexible volume options

Answer(s): B



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

  1. VaR is the worst possible loss on a financial instrument or a portfolio of financial instruments over a given time period.
  2. VaR is the minimum likely loss on a financial instrument or a portfolio of financial instruments with a given degree of probabilistic confidence.
  3. VaR is the maximum of past losses over a given period of time.
  4. 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.

Answer(s): D



Page 33 of 86



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