GARP 2016-FRR Dumps Questions Answers

Range options, also known as "corridor options" or "double no-touch options," have two strike prices. The payoff for a range option depends on the price of the underlying asset remaining within a specified range between the two strike prices during the life of the option. This dual strike price structure is what distinguishes range options from other types of options.

When Delta Bank sells off the lower-risk portions of its credit portfolio, it retains the higher-risk residual pieces. This process inherently increases the risk associated with the remaining portfolio because the lower-risk assets, which provided a cushion, are no longer part of the portfolio. As the risk increases, the potential return on these higher-risk assets also increases to compensate for the additional risk taken on by the bank. Consequently, this higher risk and potential return increase the bank's return on equity (ROE), as the bank is now leveraging more volatile assets that have higher potential returns.

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The relationship that approximates the yield on a risk-free instrument, excluding the credit quality of the Credit Default Swap (CDS) protection seller, is given by the combination of a bond and a CDS. The bond provides the base yield, and the CDS offers protection against default, together creating an instrument that mimics the characteristics of a risk-free yield by hedging against credit risk.

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