GARP Updated 2016-FRR Exam Questions and Answers by emmy

The pricing of wholesale products is primarily driven by prevailing market prices. Unlike retail products, where marketing and customer retention strategies might influence pricing, wholesale products are priced based on the current market conditions, supply and demand dynamics, and competitive landscape. This ensures that the prices reflect the true market value and risks associated with the products.

Value-at-Risk (VaR) can be calculated using either parametric or non-parametric methods. Parametric methods, such as the variance-covariance approach, typically assume that returns follow a normal distribution. This assumption simplifies the calculations but may not always accurately reflect the true distribution of returns, especially in the presence of skewness and kurtosis.

On the other hand, non-parametric methods, such as historical simulation or Monte Carlo simulation, do not make any assumptions about the distribution of returns. Instead, they rely on actual historical return data or simulated data to estimate the VaR, allowing for more flexibility and potentially more accurate risk assessments in cases where the return distributions deviate significantly from normality.

Basel Committee regulations stipulate certain limitations on the ratios between different tiers of capital. Specifically, Tier 2 capital cannot exceed 100% of Tier 1 capital, innovative instruments in Tier 1 are limited to a maximum of 15% of Tier 1 capital, and Lower Tier 2 capital can only equal up to 50% of core capital. However, the requirement stating that Upper Tier 2 capital may only equal 30% of core capital is not a requirement under the Basel Committee regulations, making option D the correct answer as it is the statement that is not a requirement.

Market manipulation refers to deliberate actions taken to deceive or mislead investors by affecting the supply, demand, or price of securities. Here are the activities considered:

Market gap: This refers to the difference between the closing price of one trading session and the opening price of the next session. It is not inherently a form of market manipulation.

Crowded trades: These occur when a large number of market participants take the same position in a security. While this can influence prices, it is not a deliberate act of manipulation.

Short squeeze: This occurs when a heavily shorted stock suddenly increases in price, forcing short sellers to buy back shares to cover their positions, further driving up the price. This can be orchestrated to create rapid price increases, qualifying as market manipulation.

Stop-loss order: This is an order placed with a broker to buy or sell once the stock reaches a certain price. It is a risk management tool and not a form of manipulation.

Therefore, a short squeeze is an example of market manipulation.

References

Source: How Finance Works​