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FRM Exam Part 1 Full Access
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Question 1 of 30
1. Question
‘Equals the sensitivity of the stock return to a 1-unit change in the factor’
Which of the following matches the above description?
Correct
The factor beta, equals the sensitivity of the stock return to a 1-unit change in the factor.
Incorrect
The factor beta, equals the sensitivity of the stock return to a 1-unit change in the factor.
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Question 2 of 30
2. Question
‘The portion of the stock’s return that is unexplained by macro factors’.
Which of the following matches the above description?
Correct
The firm-specific return, is the portion of the stock’s return that is unexplained by macro factors (i.e., the F terms in the equation).
Incorrect
The firm-specific return, is the portion of the stock’s return that is unexplained by macro factors (i.e., the F terms in the equation).
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Question 3 of 30
3. Question
‘The action of buying an asset in the cheaper market and simultaneously selling that asset in the more expensive market’.
Which of the following matches the above description?
Correct
The action of buying an asset in the cheaper market and simultaneously selling that asset in the more expensive market is called arbitrage.
Incorrect
The action of buying an asset in the cheaper market and simultaneously selling that asset in the more expensive market is called arbitrage.
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Question 4 of 30
4. Question
Which of the following assumptions is not made when forming a single-factor security market line?
Correct
The derivation of the single-factor security market line does not rely on the assumption that a mean-variance efficient market portfolio exists. This is in contrast with the capital asset pricing model, which relies on the existence of the mean-variance efficient market portfolio.
Incorrect
The derivation of the single-factor security market line does not rely on the assumption that a mean-variance efficient market portfolio exists. This is in contrast with the capital asset pricing model, which relies on the existence of the mean-variance efficient market portfolio.
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Question 5 of 30
5. Question
Which of the following statements is least likely a requirement for an arbitrage opportunity? The arbitrage situation leads to which of the following?
Correct
An arbitrage situation exists if a risk-free, zero net investment can be created that produces a positive profit. The arbitrage return need not exceed the risk-free rate
Incorrect
An arbitrage situation exists if a risk-free, zero net investment can be created that produces a positive profit. The arbitrage return need not exceed the risk-free rate
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Question 6 of 30
6. Question
Suppose Portfolio P has factor betas of 0.40 and 0.50 on two risk factors (risk factors 1 and 2, respectively). Assume a portfolio manager wishes to hedge away all of the exposure to the two risk factors, yet does not want to sell the portfolio. Which of the following strategies is expected to achieve the desired result?
Correct
A factor portfolio is a well-diversified portfolio that has a factor beta equal to one for a single risk factor, and factor betas equal to zero on the remaining factors. By shorting the hedge portfolio, the investor will offset the factor risks of the original portfolio. In this case, the 0.40 and 0.50 exposures to the two risk factors are offset by the short position in the hedge portfolio that also has 0.40 and 0.50 exposures to the two risk factors.
Incorrect
A factor portfolio is a well-diversified portfolio that has a factor beta equal to one for a single risk factor, and factor betas equal to zero on the remaining factors. By shorting the hedge portfolio, the investor will offset the factor risks of the original portfolio. In this case, the 0.40 and 0.50 exposures to the two risk factors are offset by the short position in the hedge portfolio that also has 0.40 and 0.50 exposures to the two risk factors.
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Question 7 of 30
7. Question
What can be used by the factor portfolios to hedge multiple risk factors?
Correct
Factor portfolios can be used to hedge multiple risk factors by combining the original portfolio with offsetting positions in the factor portfolios.
Incorrect
Factor portfolios can be used to hedge multiple risk factors by combining the original portfolio with offsetting positions in the factor portfolios.
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Question 8 of 30
8. Question
The Fama-French three-factor model describes returns as a linear function of which of the following?
I. Multifactor model
II. Market index return
III. Firm size
IV. Book-to-market factorsCorrect
The Fama-French three-factor model describes returns as a linear function of the market index return, firm size, and book-to-market factors.
Incorrect
The Fama-French three-factor model describes returns as a linear function of the market index return, firm size, and book-to-market factors.
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Question 9 of 30
9. Question
There are several benefits accrue to banks that have effective risk data aggregation and reporting systems in place. Which of the following are the benefits?
I. An increased ability to anticipate problems.
II. In times of financial stress, effective risk data aggregation enhances a bank’s ability to identify routes to return to financial health.
III. Improved resolvability in the event of bank stress or failure.
IV. By strengthening a bank’s risk function, the bank is better able to make strategic decisions, increase efficiency, reduce the chance of loss, and ultimately increase profitability.Correct
Several benefits accrue to banks that have effective risk data aggregation and reporting systems in place. These benefits include:
An increased ability to anticipate problems.
In times of financial stress, effective risk data aggregation enhances a bank’s ability to identify routes to return to financial health.
Improved resolvability in the event of bank stress or failure.
By strengthening a bank’s risk function, the bank is better able to make strategic decisions, increase efficiency, reduce the chance of loss, and ultimately increase profitability.
Incorrect
Several benefits accrue to banks that have effective risk data aggregation and reporting systems in place. These benefits include:
An increased ability to anticipate problems.
In times of financial stress, effective risk data aggregation enhances a bank’s ability to identify routes to return to financial health.
Improved resolvability in the event of bank stress or failure.
By strengthening a bank’s risk function, the bank is better able to make strategic decisions, increase efficiency, reduce the chance of loss, and ultimately increase profitability.
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Question 10 of 30
10. Question
Risk management reports should reflect risks in a reliable way. Which of the following are included in the aggregation process?
I. Breaking down
II. Improve data
III. Sorting
IV. Merging data and datasetsCorrect
The aggregation process includes breaking down, sorting, and merging data and datasets. Risk management reports should reflect risks in a reliable way.
Incorrect
The aggregation process includes breaking down, sorting, and merging data and datasets. Risk management reports should reflect risks in a reliable way.
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Question 11 of 30
11. Question
Which of the following should the data aggregation and risk reporting practices be?
I. Fully documented.
II. Independently reviewed and validated by individuals with expertise in information technology (IT) and data and risk reporting functions.
III. Considered when the firm undergoes new initiatives, including new product development, acquisitions, and/or divestitures.
IV. Unaffected by the bank’s structure. Specifically, decisions regarding data aggregation and reporting should be independent of the bank’s physical location or geographical presence and/or legal organization.Correct
Data aggregation and risk reporting practices should be:
Fully documented.
Independently reviewed and validated by individuals with expertise in information technology (IT) and data and risk reporting functions.
Considered when the firm undergoes new initiatives, including new product development, acquisitions, and/or divestitures.
Unaffected by the bank’s structure. Specifically, decisions regarding data aggregation and reporting should be independent of the bank’s physical location or geographical presence and/or legal organization.
Incorrect
Data aggregation and risk reporting practices should be:
Fully documented.
Independently reviewed and validated by individuals with expertise in information technology (IT) and data and risk reporting functions.
Considered when the firm undergoes new initiatives, including new product development, acquisitions, and/or divestitures.
Unaffected by the bank’s structure. Specifically, decisions regarding data aggregation and reporting should be independent of the bank’s physical location or geographical presence and/or legal organization.
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Question 12 of 30
12. Question
Jeffrey Gibson, a bank supervisor with a national regulatory agency, has requested as part of a bank examination, that Star Bank, a global systemically important bank (G-SIB), improve its aggregation and reporting of risk data. Star Bank has experienced significant losses resulting from multiple causes, ranging from poor lending decisions to bad decisions regarding the use of derivatives. The bank is now undercapitalized because of losses. Gibson refers Star Bank’s risk managers to the Basel Committee’s recommendations for effective risk data aggregation. He informs risk committee members and senior management that one of the potential direct benefits of effective risk data aggregation, particularly in light of Star Bank’s current troubles, is:
Correct
There are several benefits that accrue to banks that have effective risk data aggregation and reporting systems in place. These benefits include an increased ability to anticipate problems. Also, in times of severe financial stress, effective risk data aggregation enhances a banks ability to identify alternative routes to restore financial health. Regulatory authorities should have access to aggregated risk data to resolve issues related to bank health and viability. This aids regulators in resolving problems in the event of financial stress. By strengthening a bank’s risk function, the bank is better able to make strategic decisions, increase efficiency, reduce the probability of loss and ultimately increase profitability. In this case, the bank appears to be in financial stress, so the most relevant benefit is improved resolvability.
Incorrect
There are several benefits that accrue to banks that have effective risk data aggregation and reporting systems in place. These benefits include an increased ability to anticipate problems. Also, in times of severe financial stress, effective risk data aggregation enhances a banks ability to identify alternative routes to restore financial health. Regulatory authorities should have access to aggregated risk data to resolve issues related to bank health and viability. This aids regulators in resolving problems in the event of financial stress. By strengthening a bank’s risk function, the bank is better able to make strategic decisions, increase efficiency, reduce the probability of loss and ultimately increase profitability. In this case, the bank appears to be in financial stress, so the most relevant benefit is improved resolvability.
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Question 13 of 30
13. Question
Donna Grinstead is the risk management officer at Republic Bank. She is establishing governance principles for effective risk data aggregation. The bank has historically been lenient with respect to risk management processes, and Grinstead has been hired to remedy the situation. Which of the following statements regarding governance principles is false?
Correct
Governance principles for risk data aggregation relate to overall bank processes and the roles of senior management and the board in supporting risk data aggregation and reporting. Data sources relate to the accuracy and integrity of the data, not governance. In addition, the bank should strive to have a single source for risk data, not multiple sources.
Incorrect
Governance principles for risk data aggregation relate to overall bank processes and the roles of senior management and the board in supporting risk data aggregation and reporting. Data sources relate to the accuracy and integrity of the data, not governance. In addition, the bank should strive to have a single source for risk data, not multiple sources.
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Question 14 of 30
14. Question
A bank should include information on data characteristics (metadata) and naming conventions for legal entities, counterparties, customers, and account data in aggregated risk data. This is suggested by the Basel Committee on Banking Supervision in the principle related to:
Correct
Principle 2, data architecture and infrastructure, requires that risk data aggregation and reporting practices should be a part of the bank’s planning processes and subject to business impact analysis. Banks should establish integrated data classifications and architecture across the banking group. Multiple data models may be used as long as there are robust automated reconciliation measures in place. In addition, data architecture should include information on data characteristics (metadata) and naming conventions for legal entities, counterparties, customers, and account data.
Incorrect
Principle 2, data architecture and infrastructure, requires that risk data aggregation and reporting practices should be a part of the bank’s planning processes and subject to business impact analysis. Banks should establish integrated data classifications and architecture across the banking group. Multiple data models may be used as long as there are robust automated reconciliation measures in place. In addition, data architecture should include information on data characteristics (metadata) and naming conventions for legal entities, counterparties, customers, and account data.
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Question 15 of 30
15. Question
Emily Lister, a risk management specialist at American Bank and Trust, has been asked, as part of Principle 3 on the accuracy and integrity of aggregated risk data, to provide a report to bank supervisors on why a bank employee decided to forgo the automated processes put in place by the risk management team and write data entries by hand. Lister believes it was necessary after discussing the action with the employee. In her report, she details why it was necessary for the employee to forgo automated processes and why she believes the integrity of the data is still intact. In the report, she is describing a(n):
Correct
As part of Principle 3 on the accuracy and integrity of aggregated risk data, bank supervisors expect banks to document manual and automated risk data aggregation systems and explain when there are manual workarounds, why the workarounds are critical to data accuracy, and propose actions to minimize the impact of a manual workaround.
Incorrect
As part of Principle 3 on the accuracy and integrity of aggregated risk data, bank supervisors expect banks to document manual and automated risk data aggregation systems and explain when there are manual workarounds, why the workarounds are critical to data accuracy, and propose actions to minimize the impact of a manual workaround.
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Question 16 of 30
16. Question
Senior management and the board of directors should receive accurate and timely aggregated risk data reports for all of the following reasons except:
Correct
It is important for the board and senior management to have accurate and timely risk reports to oversee the bank’s risk-taking activities. The bank’s risk tolerance/appetite is monitored
by the board. The board and senior managers should be prepared to make decisions in times of financial stress and crisis. The board does not provide reports to regulators. Information requests from supervisors would be made at the bank level, not the board level.Incorrect
It is important for the board and senior management to have accurate and timely risk reports to oversee the bank’s risk-taking activities. The bank’s risk tolerance/appetite is monitored
by the board. The board and senior managers should be prepared to make decisions in times of financial stress and crisis. The board does not provide reports to regulators. Information requests from supervisors would be made at the bank level, not the board level. -
Question 17 of 30
17. Question
Which of the following are the two ethical behaviour areas that The Code of Conduct stresses?
I. Principles
II. Behaviour
III. Professional Standards
IV. DisciplinesCorrect
The Code of Conduct stresses ethical behavior in two areas:
(1) Principles and (2) Professional Standards.Incorrect
The Code of Conduct stresses ethical behavior in two areas:
(1) Principles and (2) Professional Standards. -
Question 18 of 30
18. Question
Which of the following are under the ‘Principles’ section?
I. Professional integrity and ethical conduct
II. Personality
III. Conflicts of interest
IV. ConfidentialityCorrect
The Principles section addresses: (1) professional integrity and ethical conduct, (2) conflicts of interest, and (3) confidentiality.
Incorrect
The Principles section addresses: (1) professional integrity and ethical conduct, (2) conflicts of interest, and (3) confidentiality.
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Question 19 of 30
19. Question
Which of the following are listed in the ‘Professional Standards’ section?
I. Fundamental responsibilities
II. Adherence to generally accepted practices in risk management
III. Conflicts of interest
IV. ConfidentialityCorrect
The Professional Standards section addresses: (1) fundamental responsibilities and (2) adherence to generally accepted practices in risk management.
Incorrect
The Professional Standards section addresses: (1) fundamental responsibilities and (2) adherence to generally accepted practices in risk management.
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Question 20 of 30
20. Question
Over the past two days, Lorraine Quigley, FRM, manager of a hedge fund, has been purchasing large quantities of Craeger Industrial Products’ common stock while at the same time shorting put options on the same stock. Quigley did not notify her clients of the trades although they are aware of the fund’s general strategy to generate returns. Which of the following statements is most likely correct? Quigley:
Correct
Quigleys trades are most likely an attempt to take advantage of an arbitrage opportunity that exists between Craeger’s common stock and its put options. She is not manipulating the prices of securities in an attempt to mislead market participants. She is pursuing a legitimate investment strategy. Participants in her hedge fund are aware of the fund’s investment strategy, and thus Quigley did not violate the Code by not disclosing this specific set of trades in advance of trading (Standards 2.1 and 5.1).
Incorrect
Quigleys trades are most likely an attempt to take advantage of an arbitrage opportunity that exists between Craeger’s common stock and its put options. She is not manipulating the prices of securities in an attempt to mislead market participants. She is pursuing a legitimate investment strategy. Participants in her hedge fund are aware of the fund’s investment strategy, and thus Quigley did not violate the Code by not disclosing this specific set of trades in advance of trading (Standards 2.1 and 5.1).
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Question 21 of 30
21. Question
Jack Schleifer, FRM, is an analyst for Brown Investment Managers (BIM). Schleifer has recently accepted an invitation to visit the facilities of ChemCo, a producer
of chemical compounds used in a variety of industries. ChemCo offers to pay for Schleifer’s accommodations in a penthouse suite at a luxury hotel and allow Schleifer to use the firm’s private jet to travel to its three facilities located in New York, Hong Kong, and London. In addition, ChemCo offers two tickets to a formal high-society dinner in New York. Schleifer declines to use ChemCo’s corporate jet or to allow the firm to pay for his accommodations but accepts the tickets to the dinner (which he discloses to his employer) since he will be able to market his firm’s mutual funds to other guests at the dinner. Has Schleifer violated the GARP Code of Conduct?Correct
GARP Members must not offer, solicit, or accept any gift, benefit, compensation, or consideration that could be reasonably expected to compromise their own or another’s independence and objectivity. Schleifer has appropriately rejected the offer of the hotel accommodations and the use of ChemCo’s jet. However, Schleifer cannot accept the tickets to the dinner. Since it is a formal high-society dinner, the tickets are most likely expensive or hard to come by. Even though he has disclosed the gift to his employer and he plans to use the dinner as a marketing opportunity for his firm, the gift itself may influence Schliefer’s future research in favor of ChemCo. Allowing such potential influence is a violation of Professional Integrity and Ethical Conduct (Standard 1.2).
Incorrect
GARP Members must not offer, solicit, or accept any gift, benefit, compensation, or consideration that could be reasonably expected to compromise their own or another’s independence and objectivity. Schleifer has appropriately rejected the offer of the hotel accommodations and the use of ChemCo’s jet. However, Schleifer cannot accept the tickets to the dinner. Since it is a formal high-society dinner, the tickets are most likely expensive or hard to come by. Even though he has disclosed the gift to his employer and he plans to use the dinner as a marketing opportunity for his firm, the gift itself may influence Schliefer’s future research in favor of ChemCo. Allowing such potential influence is a violation of Professional Integrity and Ethical Conduct (Standard 1.2).
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Question 22 of 30
22. Question
Beth Bixby, FRM, oversees a mid-cap fund that is required to invest in a minimum of 40 and a maximum of 60 different issues. Bixby uses a quantitative approach to actively manage the assets. In promotional materials, she states that “through our complex quantitative approach, securities are selected that have similar exposures to a number of risk factors that are found in the S&P 500 Index. Thus the fund is designed to track the performance of the S&P 500 Index but will receive a return premium o f between 2% and 4% according to our model’s risk-return measures.” This statement is:
Correct
It is not reasonable for Bixby to expect a 40-to-60 stock mid-cap portfolio to track the entire S&P 500 Index, which is a large-cap index. She should know that there will be periods of wide variance between the performance of the portfolio and the S&P 500 Index. There is no assurance that a premium of 2% to 4% will consistently be obtained. Bixby is in violation of Standard 1.4: “GARP Members shall not knowingly misrepresent details relating to analysis, recommendations, actions, or other professional activities,” since she has made an implicit guarantee of the fund’s expected performance.
Incorrect
It is not reasonable for Bixby to expect a 40-to-60 stock mid-cap portfolio to track the entire S&P 500 Index, which is a large-cap index. She should know that there will be periods of wide variance between the performance of the portfolio and the S&P 500 Index. There is no assurance that a premium of 2% to 4% will consistently be obtained. Bixby is in violation of Standard 1.4: “GARP Members shall not knowingly misrepresent details relating to analysis, recommendations, actions, or other professional activities,” since she has made an implicit guarantee of the fund’s expected performance.
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Question 23 of 30
23. Question
Gail Stefano, FRM, an analyst for a U.S. brokerage firm that serves U.S. investors, researches public utilities in South American emerging markets. Stefano makes the following statement in a recent report: “Based on the fact that the South American utilities sector has seen rapid growth in new service orders, we expect that most companies in the sector will be able to convert the revenue increases into significant profits. We also believe the trend will continue for the next three to five years.” The report goes on to describe the major risks of investing in this market, in particular the political and exchange rate instability associated with South American countries. Stefano’s report:
Correct
Historical growth can be cited as a fact since it actually happened. Stefano states that her firm expects further growth and profitability which is an opinion. She does not claim that these are facts. Thus, she is not in violation of Standard 5.4. In addition, Stefano identifies relevant factors and highlights in particular the most significant risks of investing in South American utilities. She has fully complied with Standard 5.3.
Incorrect
Historical growth can be cited as a fact since it actually happened. Stefano states that her firm expects further growth and profitability which is an opinion. She does not claim that these are facts. Thus, she is not in violation of Standard 5.4. In addition, Stefano identifies relevant factors and highlights in particular the most significant risks of investing in South American utilities. She has fully complied with Standard 5.3.
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Question 24 of 30
24. Question
Beth Anderson, FRM, is a portfolio manager for several wealthy clients including Reuben Carlyle. Anderson manages Carlyle’s personal portfolio of stock and bond investments. Carlyle recently told Anderson that he is under investigation by the IRS for tax evasion related to his business, Carlyle Concrete (CC). After learning about the investigation, Anderson proceeds to inform a friend at a local investment bank so that they may withdraw their proposal to take CC public. Which of the following is most likely correct? Anderson:
Correct
Anderson must maintain the confidentiality of client information according to Standard 3.1. Confidentiality may be broken in instances involving illegal activities on the part of the client, but the client’s information may only be relayed to proper authorities. Anderson did not have the right to inform the investment bank of her client’s investigation.
Incorrect
Anderson must maintain the confidentiality of client information according to Standard 3.1. Confidentiality may be broken in instances involving illegal activities on the part of the client, but the client’s information may only be relayed to proper authorities. Anderson did not have the right to inform the investment bank of her client’s investigation.
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Question 25 of 30
25. Question
Chrome Fund has an expected return of 12%. Nickel Fund is expected to provide an excess return of 8%. Standard deviations of returns are 5% for Chrome Fund and 4% for Nickel Fund. The risk-free rate is 2%. Based on the Sharpe ratio, a rational investor should:
Correct
Excess return for Chrome is 12% – 2% = 10%. Chromes Sharpe ratio is 10% / 5% = 2.0. Excess return for Nickel is given as 8%. Nickel’s Sharpe ratio is 8% / 4% = 2.0. An investor should be indifferent between these two funds because they provide the same expected excess return per unit of risk.
Incorrect
Excess return for Chrome is 12% – 2% = 10%. Chromes Sharpe ratio is 10% / 5% = 2.0. Excess return for Nickel is given as 8%. Nickel’s Sharpe ratio is 8% / 4% = 2.0. An investor should be indifferent between these two funds because they provide the same expected excess return per unit of risk.
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Question 26 of 30
26. Question
Over a decade ago, Yasuo Hamanaka, the lead copper trader for Sumitomo, attempted to corner the copper market in a classic market manipulation strategy. Such lack o f supervision over his trading activities resulted from poor internal controls. Because o f that lack o f supervision, which o f the following series o f transactions was he able to engage in that ultimately resulted in a $2.6 billion trading loss for Sumitomo?
Correct
Hamanaka established a dominant long position in futures contracts and simultaneously purchased large quantities of physical copper. As well, to help finance his long copper positions, he even sold put options on copper. In essence, here was a “triple long” strategy that would only pay off if the price of copper or copper futures increased. At the same time, there was a huge risk of losses should the prices fall. Unfortunately, there was a continuation of plummeting copper prices after other copper traders began selling their copper holdings in anticipation of Sumitomo doing the same. The end result was total losses of $2.6 billion for Sumitomo.
Incorrect
Hamanaka established a dominant long position in futures contracts and simultaneously purchased large quantities of physical copper. As well, to help finance his long copper positions, he even sold put options on copper. In essence, here was a “triple long” strategy that would only pay off if the price of copper or copper futures increased. At the same time, there was a huge risk of losses should the prices fall. Unfortunately, there was a continuation of plummeting copper prices after other copper traders began selling their copper holdings in anticipation of Sumitomo doing the same. The end result was total losses of $2.6 billion for Sumitomo.
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Question 27 of 30
27. Question
Alan Walters is a risk manager at OneFirst Bank, fie has recently been asked to prepare a risk management report for his bank’s board of directors. The board members are planning to utilize this report to make critical risk management decisions regarding relevant bank risks. Walters assures the board that the report will be accurate and complete by covering all material risk areas within the organization. He also points out that the report will contain meaningful information that will be applicable to all employees and easily understood at all levels o f the organization. Walters plans on distributing the risk management report to all relevant parties while ensuring confidentiality. Which o f the following effective risk data aggregation and risk reporting principles set forth by the Basel Committee on Banking Supervision did Walters most likely violate?
Correct
Principle 9 requires that reports be tailored to the end user (e.g., the board, senior managers, and risk committee members) and should assist them with sound risk management and decision making. Walters suggested that the report would not be tailored to the board because the report was going to be applicable to all employees and easily understood at
all levels of the organization. Principle 7 requires that risk reports should be accurate and precise. Board members should be able to use the reports to make critical decisions about bank risks. Principle 8 requires that reports should contain position and risk exposure information for all relevant risks. Principle 11 requires that reports should be disseminated in a timely fashion while maintaining confidentiality where required.Incorrect
Principle 9 requires that reports be tailored to the end user (e.g., the board, senior managers, and risk committee members) and should assist them with sound risk management and decision making. Walters suggested that the report would not be tailored to the board because the report was going to be applicable to all employees and easily understood at
all levels of the organization. Principle 7 requires that risk reports should be accurate and precise. Board members should be able to use the reports to make critical decisions about bank risks. Principle 8 requires that reports should contain position and risk exposure information for all relevant risks. Principle 11 requires that reports should be disseminated in a timely fashion while maintaining confidentiality where required. -
Question 28 of 30
28. Question
Will Lambert, FRM, is a financial risk analyst for Offshore Investments. He is preparing a purchase recommendation on Burch Corporation. According to the GARP Code of Conduct, which of the following statements about disclosure of conflicts is most correct? Lambert would have to disclose that:
Correct
According to Standard 2.2, GARP Members shall make full and fair disclosure of all matters that could reasonably be expected to impair independence and objectivity or interfere with respective duties to their employer, clients, and prospective clients.
Incorrect
According to Standard 2.2, GARP Members shall make full and fair disclosure of all matters that could reasonably be expected to impair independence and objectivity or interfere with respective duties to their employer, clients, and prospective clients.
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Question 29 of 30
29. Question
A firm has determined that the value at risk (VaR) o f its investment portfolio is $ 18 million for one day at a 95% confidence level. Which of the following statements regarding this VaR measure is correct?
Correct
The VaR of this investment can be interpreted as either (1) there is a 95% probability that the portfolio will lose no more than $18 million on a given day or (2) there is a 5% probability that the portfolio will lose more than $ 18 million on a given day.
Incorrect
The VaR of this investment can be interpreted as either (1) there is a 95% probability that the portfolio will lose no more than $18 million on a given day or (2) there is a 5% probability that the portfolio will lose more than $ 18 million on a given day.
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Question 30 of 30
30. Question
A risk management consultant is considering the feasibility of hedging several risk exposures at Firm XYZ. Regarding the advantages and disadvantages o f hedging risk exposures in practice, which of the following actions will least likely result from hedging activities for the firm?
Correct
Hedging activities incur compliance costs related to disclosure and accounting.
Incorrect
Hedging activities incur compliance costs related to disclosure and accounting.