GARP 2016-FRR Exam With Confidence Using Practice Dumps

Rho is a measure of the sensitivity of an option's price to changes in interest rates. If rho is positive, it means that the price of the option will increase when interest rates rise. This is because higher interest rates generally increase the cost of carry, which can make holding the underlying asset more expensive and thus increase the value of the option.

Interest rates on bonds are typically stated on an annualized rate (I).

Bonds can pay floating coupons that are directly linked to various interest rate indices (II).

Convertible bonds have an element of prepayment risk (III).

Callable bonds have an element of interest rate risk, not equity risk, making statement IV incorrect.

Banks set risk limits for several reasons:

To control and minimize a bank's current risk exposure: This helps in managing and mitigating existing risks.

To allocate risks to business units: This ensures that risks are managed at appropriate levels within the organization.

To keep risk within tolerance levels: This ensures that the bank's overall risk exposure does not exceed its risk appetite.

Setting these limits is a proactive measure to ensure that the bank operates within its risk capacity and is prepared for potential future risks.