Practice Quiz

FRM Financial Risk Manager Practice Test - Question List

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61. The Sarbanes-Oxley Act of 2002 is a federal law enacted in reaction to which of the following events?
  1. The Madoff’s Ponzi scheme.
  2. The Enron debacle.
  3. The WorldCom collapse.
  4. All of the above.
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62. Long-Term Capital Management (LTCM) was a U.S. hedge fund which used trading strategies combined with high leverage. Despite initial enormous profits, it failed spectacularly in 1998. What most likely led to this failure? Select all that apply.
  1. The uncontrolled use of high leverage.
  2. The Asian Financial crisis in 1997.
  3. The Russian Financial crisis in 1998.
  4. The incompetent board of directors.
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63. A liquidity trap is...
  1. A strategy that an investor would use to gain his competitor’s liquid assets.
  2. A situation where the liquidity in the market created by low interest rates does not stimulate the economy to full employment.
  3. A strategy that banks use to trap house owners to pay their mortgages.
  4. A situation when liquid assets become illiquid because they are unable to be sold or bought.
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64. A bank run is...
  1. A portable bank service that is convenient for customers to deposit or withdraw their money.
  2. A situation when a bank lends out a lot to customers.
  3. A situation when a large number of customers withdraw their deposits because they believe the bank might be or is insolvent.
  4. A situation when a big bank splits into different smaller banks.
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65. WePro Ltd. is considered to be highly leveraged. What does “highly leveraged” refer to in the company situation?
  1. WePro Ltd. has significantly more debt than its equity.
  2. WePro Ltd. Breaks even in sales.
  3. WePro Ltd. has made huge profit.
  4. WePro Ltd. is facing bankruptcy.
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