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?

ACounterparty credit risk refers to the inability to realize gains in a contract with a counterparty due to its default.

BThe exposure at default is variable due to fluctuations in swap valuations.

CThe exposure at default can be negatively correlated to probability of default.

DDynamic collateral provisions often increase counterparty risk considerably.

Show Suggested Answer

Suggested Answer: D

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

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Alverta

8 days 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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Raylene

14 days ago

I think statement B is incorrect, exposure at default is not variable due to fluctuations in swap valuations.

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Tonja

15 days ago

I believe the exposure at default can be positively correlated to probability of default.

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Marilynn

16 days ago

I agree with Joaquin, dynamic collateral provisions can actually reduce counterparty risk.

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Salena

24 days 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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Kathrine

10 days ago

B) The exposure at default is variable due to fluctuations in swap valuations.

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Jose

17 days 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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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

1 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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Nohemi

2 days 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

9 days ago

User2: I agree with User1. A sounds like the incorrect statement.

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Vesta

10 days ago

User1: I think A is incorrect. Counterparty credit risk is about default, not gains.

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Joaquin

1 months ago

I think the incorrect statement is D.

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Luz

1 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

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

2 days 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

15 days ago

User 1: I agree, dynamic collateral provisions increasing counterparty risk doesn't sound right.

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GARP Exam 2016-FRR Topic 1 Question 5 Discussion

Contribute your Thoughts:

Alverta

Raylene

Tonja

Marilynn

Salena

Kathrine

Jose

Lorenza

Karl

Nohemi

Dino

Vesta

Joaquin

Luz

Lucille

Hobert

Adelle