11.Which of the following actions is not a step that could help prevent a rogue trader from destroying an entire business?

A. Maintain separation between supervision of back-office and front-office operations.

B. Treat all expectation-beating results with a degree of healthy skepticism.

C. Monitor trading profits that are reported to be consistent over time.

D. Measure all trading activity over short periods of time and not over the tenure of the trade.

12. Which of the following scenarios most likely presents a reputation risk?

A. The CFO of a regional bank announced that it is using financial engineering to manage risk.

B. A risk manager buys one asset and sells another in an attempt to capture a perceived mispricing between the two assets.

C. A regional manufacturer is rumored to be replacing all plastic packaging with biodegradable and recycled products.

D. The unmonitored equipment of an electric utility is rumored to be the cause of a series of wildfires that caused significant damage.

13. Which of the following statements is not a lesson learned from the collapse of Enron?

A. Independent and ethical auditors are needed as a double check to mitigate agency risk.

B. The roles of chairman of the board and CEO should be separated for enhanced accountability.

C. The best way for a company to avoid fraud is for the CEO and the CFO to be in constant contact regarding internal policies.

D. Aggressive accounting techniques should be highly scrutinized by investors, or the target company should be avoided as a potential investment.

14. Which of the following statements is correct regarding cyber risk?

A. Cyber risk is only a danger for banks.

B. Cyber risk must be retained and mitigated with internal resources.

C. Cyber risk is becoming less of an issue due to the impact of regulation.

D. Cyber risk involves the potential for loss resulting from a technology-related breach.

15. One of the contributory factors of the financial crisis of 2007-2009 was the move to the originate-to-distribute model. Under this model, the lender

A. may relax its underwriting standards.

B. needs to hold more regulatory capital.

C. is less likely to originate high loan-to-value mortgages.

D. originates mortgages and then retains them on its balance sheet until they mature.

16. Which of the following statements is incorrect in relation to the use of collateralized debt obligations (CDO) during the financial crisis?

A. Some CDO tranches were repackaged into CDO-squared.

B. CDOs were opaque and complex to value, especially at the peak of the crisis.

C. Cash flows and defaults were determined according to a waterfall structure.

D. Despite containing subprime mortgages, investors could safely rely on the assessment given by the rating agencies.

17. The use of asset-backed commercial paper (ABCP) and repurchase agreements {repos) by banks to fund investment mortgages led to problems because

A. the commercial paper was unsecured.

B. it exposed banks to funding liquidity risk.

C. the duration of the liabilities exceeded the duration of the assets.

D. rating agencies provided unrealistically high ratings for the assets.

18. To prevent further liquidity issues, the Federal Reserve and the U.S. government intervened in financial markets by implementing all of the following except

A. lowering interest rates.

B. bailing out major financial institutions.

C. opening the discount window to commercial banks.

D. acquiring assets issued by major financial institutions.

19. Over the past two days, Lorraine Quigley, FRM, manager of a hedge fund, has been purchasing large quantities of Craeger Industrial Products' common stock while at the same time shorting put options on the same stock. Quigley did not notify her clients of the trades although they are aware of the fund's general strategy to generate returns.

Which of the following statements is most likely correct? Quigley:

A. did not violate the Code.

B. violated the Code by manipulating the prices of publicly traded securities.

C. violated the Code by failing to disclose the transactions to clients before they occurred.

D. violated the Code by failing to establish a reasonable and adequate basis before making the trades.

20.Jack Schleifer, FRM, is an analyst for Brown Investment Managers (BIM). Schleifer has recently accepted an invitation to visit the facilities of ChemCo, a producer of chemical compounds used in a variety of industries. ChemCo offers to pay for Schleifer's accommodations in a penthouse suite at a luxury hotel and allow Schleifer to use the firm's private jet to travel to its three facilities located in New York, Hong Kong, and London. In addition, ChemCo offers two tickets to a formal high-society dinner in New York. Schleifer declines to use ChemCo's corporate jet or to allow the firm to pay for his accommodations but accepts the tickets to the dinner (which he discloses to his employer) since he will be able to market his firm's mutual funds to other guests at the dinner. Has Schleifer violated the GARP Code of Conduct?

A. Yes.

B. No, since he is using the gifts accepted to benefit his employer's interests.

C. No, since the gifts he accepted were fully disclosed in writing to his employer.

D. No, since the gift he accepted is of nominal value and he declined to accept the hotel accommodations and the use of ChemCo's jet.