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GARP 2016-FRR Exam
Financial Risk and Regulation (FRR) Series (Page 5 )

Updated On: 7-Feb-2026
Page 5 of 70
PDF with 387 Questions

Which one of the following four options is NOT a typical component of a currency swap?

  1. An initial currency exchange of the notional amount
  2. Denomination of the original notional amount into a foreign currency
  3. Periodic exchange of interest payments in different currencies
  4. A final currency exchange

Answer(s): B



Which one of the following four options correctly identifies the core difference between bonds and loans?

  1. These instruments receive a different legal treatment.
  2. These instruments have different pricing drivers.
  3. These instruments cannot be used to estimate credit capital under provisions of the Basel II Accord.
  4. These instruments are subject to different credit counterparty regulations.

Answer(s): A



Which of the following factors would typically increase the credit spread?
I) Increase in the probability of default of the issuer.
II) Decrease in risk premium.
III) Decrease in loss given default of the issuer.
IV) Increase in expected loss.

  1. I
  2. II and III
  3. I and IV
  4. I, II, and IV

Answer(s): C



Which one of the following four mathematical option pricing models is used most widely for pricing European options?

  1. The Black model
  2. The Black-Scholes model
  3. The Garman-Kohlhagen model
  4. The Heston model

Answer(s): B



Which one of the following four formulas correctly identifies the expected loss for all credit instruments?

  1. Expected Loss = Probability of Default x Loss Given Default x Exposure at Default
  2. Expected Loss = Probability of Default x Loss Given Default + Exposure at Default
  3. Expected Loss = Probability of Default x Loss Given Default - Exposure at Default
  4. Expected Loss = Probability of Default x Loss Given Default / Exposure at Default

Answer(s): A






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