Free GARP FRM-Part-2 Exam Questions

Kris Gaines, Treasurer at Palm Air Bank and Trust, is considering ways to meet a funding gap created by greater than expected loan demand. Palm Air is a medium sized bank located in Florida. The funding gap is approximately $850,000. Gaines is choosing between several nondepository funding types. The funds are needed immediately. Which type of funding is most appropriate in this situation?

A manager from the structured credit risk desk at a bank is presenting to a group ofnewly hired risk analysts on calculating cash flows in a securitization structure. Themanager illustrates the procedure with the existing collateral pool of loans and thecorresponding liabilities, all with a maturity of 5 years, using the following information:Initial number of loans in the collateral pool 100Principal amount of each loan EUR 1,000,000Total coupon interest to be paid annually on all junior and senior bonds EUR 6,300,000Maximum annual amount flowing from the excess spread into the overcollateralization account EUR 1,500,000Swap rate per year for all maturities 3.5%Recovery rate in the event of a loan default 45%The manager makes additional observations as follows:• The loans in the collateral pool pay a fixed spread of 2.2% over the swap curve.• There were no defaults in year 1.• The value of the overcollateralization account at the end of year 1 was EUR 0.What is the value of the overcollateralization account at the end of year 2 if there are 8 defaults in year 2?

Assuming a loan portfolio of L, a recovery rate of RR, and the percentage of losses on a portfolio less than V(T, X), which of the following formulas is used to estimate credit VaR?

The Merton model is different from Moody’s-KMV Expected Default Frequency approach in two key areas. Which of the following statements refers to one of those differences?

Which of the following actions is not an advantage of the central counterparty (CCP) in the centralized clearing process?