2016-FRR Practice Exam Pdf | 2016-FRR Test Lab Questions

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GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q56-Q61):

NEW QUESTION # 56
Which of the activities represent examples of market manipulation?

A. Market gap
B. Short squeeze
C. Stop-loss order
D. Crowded trades

Answer: B

Explanation:
Market manipulation refers to deliberate actions taken to deceive or mislead investors by affecting the supply, demand, or price of securities. Here are the activities considered:
* Market gap: This refers to the difference between the closing price of one trading session and the opening price of the next session. It is not inherently a form of market manipulation.
* Crowded trades: These occur when a large number of market participants take the same position in a security. While this can influence prices, it is not a deliberate act of manipulation.
* Short squeeze: This occurs when a heavily shorted stock suddenly increases in price, forcing short
* sellers to buy back shares to cover their positions, further driving up the price. This can be orchestrated to create rapid price increases, qualifying as market manipulation.
* Stop-loss order: This is an order placed with a broker to buy or sell once the stock reaches a certain price. It is a risk management tool and not a form of manipulation.
Therefore, a short squeeze is an example of market manipulation.
ReferencesSource: How Finance Works

NEW QUESTION # 57
Which one of the following four statements about equity indices is INCORRECT?

A. Equity indices do not trade in cash form, rather, they are meant to track the overall performance of an equity market.
B. Equity indices are numerical calculations that reflect the performance of hypothetical equity portfolios.
C. Capitalization-weighted equity indices are not generally considered better to track the performance of an overall market.
D. Price-weighted equity indices give greater weight to shares trading at high prices.

Answer: C

Explanation:
* Equity indices are numerical calculations that reflect the performance of hypothetical equity portfolios.
* They are designed to track the overall performance of an equity market and do not trade in cash form.
* Capitalization-weighted indices, which weight stocks by their market capitalization, are generally considered effective in tracking the performance of the overall market. Therefore, the statement that they are not generally considered better is incorrect.
* Price-weighted indices give greater weight to shares trading at high prices, reflecting their price movements more heavily in the index.

NEW QUESTION # 58
Which one of the following four statements regarding commodity derivative risks is INCORRECT?

A. Because of the different demand/supply balance in each region and the cost of transporting the oil
between regions, a tanker of Brent crude oil in the UK will have a different value to a UK buyer than a
tanker of Arab light crude oil in Singapore, which results in the basis risk.
B. Calendar spreads represent a special case of basis risk and occur when the relative prices of commodity
futures do not come in alignment and the trader becomes exposed to the absolute price movements.
C. In most commodities, the longest term contracts are the most volatile, while the shortest term forward
contract are the least volatile.
D. Some commodities can be both in backwardation and a have a strong seasonal element.

Answer: C

NEW QUESTION # 59
According to the principles of the Basel II Accord, the implementation and relative weights of the elements of the operational risk framework depend on:
I. The culture of the financial institution
II. Regulatory drivers
III. Business drivers
IV. The bank's reporting currency

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

Answer: A

Explanation:
According to the principles of the Basel II Accord, the implementation and relative weights of the elements of the operational risk framework depend on the culture of the financial institution (I), regulatory drivers (II), and business drivers (III). The bank's reporting currency (IV) is not relevant to the implementation of the operational risk framework under Basel II.
References:Basel II Accord principles on operational risk.

NEW QUESTION # 60
The pricing of credit default swaps is a function of all of the following EXCEPT:

A. Loss given default
B. Probability of default
C. Market spreads
D. Duration

Answer: C

Explanation:
The pricing of credit default swaps (CDS) is primarily influenced by:
* Probability of Default: The likelihood that the underlying entity will default on its obligations.
* Duration: The term or maturity of the CDS contract.
* Loss Given Default: The expected loss if the underlying entity defaults.
Market spreads, while relevant to bond pricing and other instruments, are not a direct factor in the calculation of the pricing of CDS contracts.
References
* Verified information on CDS pricing factors from the document

NEW QUESTION # 61
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2016-FRR Practice Exam Pdf | 2016-FRR Test Lab Questions

Authoritative 2016-FRR Practice Exam Pdf & Leader in Qualification Exams & Newest GARP Financial Risk and Regulation (FRR) Series

GARP Financial Risk and Regulation (FRR) Series Sample Questions (Q56-Q61):

Reading The 2016-FRR Practice Exam Pdf, Pass The Financial Risk and Regulation (FRR) Series

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