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GARP Exam 2016-FRR Topic 1 Question 5 Discussion

Actual exam question for GARP's 2016-FRR exam
Question #: 5
Topic #: 1
[All 2016-FRR Questions]

Which one of the following four statements regarding counterparty credit risk is INCORRECT?

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Suggested Answer: D

by Lorita at May 01, 2025, 10:21 AM

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Alverta
1 months ago
I'm cracking up at the idea of 'dynamic collateral provisions' increasing counterparty risk. That's like saying 'fire extinguishers increase the risk of fire'.
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Paola
20 days ago
Celestina: Agreed. It's important to understand these concepts in order to manage risk effectively.
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Celestina
26 days ago
User 2: Definitely. Dynamic collateral provisions should reduce risk, not increase it.
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Hannah
1 months ago
User 1: I know, right? It doesn't make sense.
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Raylene
1 months ago
I think statement B is incorrect, exposure at default is not variable due to fluctuations in swap valuations.
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Tonja
2 months ago
I believe the exposure at default can be positively correlated to probability of default.
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Marilynn
2 months ago
I agree with Joaquin, dynamic collateral provisions can actually reduce counterparty risk.
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Salena
2 months ago
D all the way! Dynamic collateral provisions? Sounds like a recipe for disaster. Who comes up with these exam questions anyway?
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Shaunna
1 months ago
C) The exposure at default can be negatively correlated to probability of default.
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Kathrine
1 months ago
B) The exposure at default is variable due to fluctuations in swap valuations.
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Jose
2 months ago
A) Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.
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Lorenza
2 months ago
Hmm, this is a tough one. I'm going to have to go with C. The exposure at default can be negatively correlated to probability of default. Sounds counterintuitive, but it makes sense if you think about it.
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Karl
2 months ago
I'm going with B. The exposure at default is variable due to fluctuations in swap valuations. Seems pretty straightforward.
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Teddy
28 days ago
User4: I see your point, User3. D does seem like it could be the incorrect statement.
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Nohemi
1 months ago
User3: I'm not sure, but I think D is the incorrect statement. Dynamic collateral provisions should reduce risk, not increase it.
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Dino
1 months ago
User2: I agree with User1. A sounds like the incorrect statement.
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Vesta
1 months ago
User1: I think A is incorrect. Counterparty credit risk is about default, not gains.
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Joaquin
2 months ago
I think the incorrect statement is D.
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Luz
2 months ago
I think the correct answer is D. Dynamic collateral provisions often increase counterparty risk considerably. That just doesn't make sense to me.
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Lucille
1 months ago
User 3: I believe it's A. Counterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.
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Hobert
1 months ago
User 2: I think the exposure at default being negatively correlated to probability of default is the incorrect statement.
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Adelle
2 months ago
User 1: I agree, dynamic collateral provisions increasing counterparty risk doesn't sound right.
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