2016-FRR

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Latest 2016-FRR Exam Dumps Questions

The dumps for 2016-FRR exam was last updated on Apr 25,2025 .

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Question#1

To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements:
I. Bonds
II. Marketable loans
III. Credit card loans

A. I
B. II
C. I, II
D. II, III

Explanation:
Beta Bank can directly sell bonds and marketable loans in the secondary market. These instruments are typically more liquid and can be traded between financial institutions.
Credit card loans, on the other hand, are usually not directly sold as they are more personalized and less standardized compared to bonds and marketable loans.
References:
How Finance Works: "Banks can directly sell bonds and marketable loans to manage their credit portfolios." .

Question#2

Which one of the following four statements regarding commodity exchanges is INCORRECT?

A. Banks have no natural direct exposure to commodities.
B. Banks trade in OTC contracts primarily to serve clients and facilitate client hedging and lending.
C. Customers rarely trade physical commodities with banks.
D. Commodity markets are mot liquid than debt markets.

Explanation:
The statement that "commodity markets are more liquid than debt markets" is incorrect. Commodity markets can be less liquid compared to the highly developed and widely traded debt markets. Banks typically do not have direct exposure to commodities but engage in OTC contracts to serve clients and facilitate hedging.

Question#3

Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a foreign exchange option?

A. Underlying exchange rates
B. Underlying interest rates
C. Discrete future stock prices
D. Option exercise price

Explanation:
The Black-Scholes model does not require discrete future stock prices as an input. Instead, it uses the current price of the underlying asset, the option’s strike price, time to maturity, risk-free interest rate, and
the volatility of the underlying asset. The model assumes that the price of the underlying asset follows a continuous stochastic process and not discrete intervals.
References: This non-requirement of discrete future stock prices in the Black-Scholes model is confirmed in the "How Finance Works" document, which details the necessary inputs for the model??.

Question#4

Which of the following risk measures are based on the underlying assumption that interest rates across all maturities change by exactly the same amount?
I. Present value of a basis point.
II. Yield volatility.
III. Macaulay's duration.
IV. Modified duration.

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

Explanation:
Risk measures such as the present value of a basis point (I), Macaulay's duration (III), and modified duration (IV) are based on the underlying assumption that interest rates across all maturities change by exactly the same amount. These measures rely on the concept of a parallel shift in the yield curve, where all interest rates move together in a uniform manner. Yield volatility (II), on the other hand, is not predicated on this assumption as it measures the variability in yields over time and does not assume uniform changes across all maturities.

Question#5

Which one of the following four exotic option types has another option as its underlying asset, and as a result of its construction is generally believed to be very difficult to model?

A. Spread options
B. Chooser options
C. Binary options
D. Compound options

Explanation:
Compound options are exotic options that have another option as their underlying asset, making them particularly complex to model. The complexity arises because the value of a compound option is derived from another option, which is already a derivative with its own set of valuation challenges. This nested structure introduces multiple layers of volatility and dependencies that are difficult to predict and model accurately using standard option pricing models.

Exam Code: 2016-FRR         Q & A: 243 Q&As         Updated:  Apr 25,2025

 

 Full 2016-FRR Exam Dumps Here

Exam Code: 2016-FRR
Q & A: 243 Q&As
Updated:  Apr 25,2025

 

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