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Vendor: GARP
Exam Code: ICBRR
Exam Name: International Certificate in Banking Risk and Regulation (ICBRR)
Certification: GARP Certification
Total Questions: 342 Q&A
Updated on: Dec 14, 2024
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ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies has an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, what would be the probability of a cumulative $40 million loss from these two mortgage borrowers?
A. 0.01%
B. 0.1%
C. 1%
D. 10%
Which of the following statements about a bank's behavior regarding Risk Adjusted Return on Capital (RAROC) is correct?
A. A bank should always seek to maximize their overall RAROC.
II. A bank should consider investing in a business even with negative RAROC if it increases the
RAROC of the bank as a whole.
III. A bank should minimize its overall RAROC by controlling the absolute and relative amount of risk of its businesses.
IV. A bank should maximize its RAROC by always investing in a new business that maximizes the RAROC for that business unit.
B. I and II
C. II and IV
D. I, II and III
E. II, III, and IV
Bank Milo has $4 million in cash and $5 million in loans coming due tomorrow with an expected default rate of 1%. The proceeds will be deposited overnight. The bank owes $ 9 million on a securities purchase that settles in two days and pays off $8 million in commercial paper in three days that is not expected to renew. On what days does the bank face negative cumulative liquidity?
A. Day 3 only.
B. Days 2 and 3.
C. Day 2 only.
D. Days 1, 2 and 3.
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