GARP ICBRR - International Certificate in Banking Risk and Regulation (ICBRR) Exam
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Total 342 questions
Question #6 (Topic: Topic 1)
Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of
default on a one-year no-payment of USD $1 million, including interest and principal
repayment. The bank charges 3% interest rate spread to firms in the machinery industry,
and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal
payments once at the end the year. Delta can only default at the end of the year. If Delta
defaults, the bank expects to lose 50% of its promised payment.
What may happen to the Delta's initial credit parameter and the value of its loan if the
machinery industry experiences adverse structural changes?
default on a one-year no-payment of USD $1 million, including interest and principal
repayment. The bank charges 3% interest rate spread to firms in the machinery industry,
and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal
payments once at the end the year. Delta can only default at the end of the year. If Delta
defaults, the bank expects to lose 50% of its promised payment.
What may happen to the Delta's initial credit parameter and the value of its loan if the
machinery industry experiences adverse structural changes?
A. Probability of default and loss at default may decrease simultaneously, while duration rises causing the loan value to decrease.
B. Probability of default and loss at default may decrease simultaneously, while duration falls causing the loan value to decrease.
C. Probability of default and loss at default may increase simultaneously, while duration rises causing the loan value to decrease.
D. Probability of default and loss at default may increase simultaneously, while duration falls causing the loan value to decrease.
Answer: D
Question #7 (Topic: Topic 1)
Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of
default on a one-year no-payment of USD $1 million, including interest and principal
repayment. The bank charges 3% interest rate spread to firms in the machinery industry,
and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal
payments once at the end the year. Delta can only default at the end of the year. If Delta
defaults, the bank expects to lose 50% of its promised payment. Six months after Alpha
Bank provides USD $1 million loan to the Delta Industrial Machinery Corporation, a new
competitor enters the machinery industry, causing Delta to adjust its prices and mark down
the value of its inventory. Hence, the probability of default increases from 2% to 10% and
the loss given default increases from 50% to 75%. If Alpha Bank can reprice the loan, what
should the new rate be?
default on a one-year no-payment of USD $1 million, including interest and principal
repayment. The bank charges 3% interest rate spread to firms in the machinery industry,
and the risk-free interest rate is 6%. Alpha Bank receives both interest and principal
payments once at the end the year. Delta can only default at the end of the year. If Delta
defaults, the bank expects to lose 50% of its promised payment. Six months after Alpha
Bank provides USD $1 million loan to the Delta Industrial Machinery Corporation, a new
competitor enters the machinery industry, causing Delta to adjust its prices and mark down
the value of its inventory. Hence, the probability of default increases from 2% to 10% and
the loss given default increases from 50% to 75%. If Alpha Bank can reprice the loan, what
should the new rate be?
A. 10%
B. 13%
C. 16.5%
D. 20.5%
Answer: D
Question #8 (Topic: Topic 1)
Which one of the following four model types would assign an obligor to an obligor class
based on the risk characteristics of the borrower at the time the loan was originated and
estimate the default probability based on the past default rate of the members of that
particular class?
based on the risk characteristics of the borrower at the time the loan was originated and
estimate the default probability based on the past default rate of the members of that
particular class?
A. Dynamic models
B. Causal models
C. Historical frequency models
D. Credit rating models
Answer: C
Question #9 (Topic: Topic 1)
Which one of the following four models is typically used to grade the obligations of small-
and medium-size enterprises?
and medium-size enterprises?
A. Causal models
B. Historical frequency models
C. Credit scoring models
D. Credit rating models
Answer: C
Question #10 (Topic: Topic 1)
A credit associate extending a loan to an obligor suspects that the obligor may change his
behavior after the loan has been originated. The obligor in this case may use the loan
proceeds for purposes not sanctioned by the lender, thereby increasing the risk of default.
Hence, the credit associate must estimate the probability of default based on the
assumptions about the applicability of the following tendency to this lending situation:
behavior after the loan has been originated. The obligor in this case may use the loan
proceeds for purposes not sanctioned by the lender, thereby increasing the risk of default.
Hence, the credit associate must estimate the probability of default based on the
assumptions about the applicability of the following tendency to this lending situation:
A. Speculation
B. Short bias
C. Moral hazard
D. Adverse selection
Answer: C
