Practice Quiz

FRM Financial Risk Manager Practice Test - Question List

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1. Tom is looking at the morning’s currency reports and notices that 1 Nigindia rupee equals 1.5 Vietbodian pounds. It also reads that 1 Vietbodian pound equals 2 Mexicali pesos, but 1 Nigindia rupee equals 4 Mexicali pesos. Tom wants to gain profits by employing an arbitrage strategy. Which of the following defines arbitrage strategy?
  1. An arbitrage strategy is a risky strategy to buy something at a low price and sell it at a high price.
  2. An arbitrage strategy is a pattern of trade that allows the exchange in currencies.
  3. An arbitrage strategy is a pattern of trade that exploits the discrepancies between the prices of different assets in order to earn profit without bearing any risk.
  4. An arbitrage strategy is a strategy that requires risky behaviors and a high setup cost.
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2. Under which of the following conditions can price discrepancies remain, once arbitrage opportunities have been exhausted?
  1. There must be market friction and institutional constraints on trading activities.
  2. Assets are divisible.
  3. Market is in equilibrium.
  4. The market is frictionless.
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3. Which of the following types of information provide a likely opportunity to earn abnormal profits on the market?
  1. The latest copy of a company’s annual report.
  2. News from the market that 100,000 shares of A&A were just traded in a single transaction.
  3. A top analyst that works for you advising you that he strongly believes A&A will increase its dividend soon.
  4. News from the market that a large new issue of the common stock of A&A Pty
  5. Your friend, the CEO of A&A, telling you the company is going to increase its dividend.
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4. Tom wants to hold an asset. What determines his demand to do so?
  1. His preferences.
  2. The price of other assets.
  3. His budget (wealth) constraint.
  4. All of the above.
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5. Current assets...
  1. Are important to company’s creditors.
  2. Are insignificant since investors only interested in long term assets.
  3. Are a source of fund for a company’s day-to-day operations.
  4. Can be converted into cash in less than a year.
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