Free GARP FRM-Part-1 Exam Questions

Become GARP Certified with updated FRM-Part-1 exam questions and correct answers

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Total 533 Questions | Updated On: Feb 18, 2026

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Question 1

Bonds rated B have a 25% chance of default in five years. Bonds rated CCC have a 40% chance of default in five years. A portfolio consists of 30% B and 70% CCC-rated bonds. If a randomly selected bond defaults in a five-year period, what is the probability that it was a Brated bond?

A : 0.250.

B : 0.429.

C : 0.625.

D : 0.211.

Answer: D

Question 2

An analyst applying a reinforcement learning model has assigned a probability to exploitation of 65%. As she completes more trials, she can reasonably expect that the probability will increase above:

A : 65% for exploitation.

B : 50% for exploitation

C : 50% for exploration.

D : 35% for exploration.

Answer: A

Question 3

Which of the following is not a reason to accumulate loss data?

A : Past losses are almost always repeated in the future.

B : It focuses management attention on the magnitude and e ect of risk.

C : It provides data necessary for empirical analysis.

D : It contributes to the understanding of future expected losses.

Answer: A

Question 4

A risk manager at a bank is explaining foreign exchange rate parity concepts to a group of newly hired analysts. The manager describes the assumptions, formulas, and implications of the covered interest rate parity and uncovered interest rate parity theorems. Which of the following statements is correct regarding these theorems?

A : Covered interest rate parity holds, among other reasons, because the amount of currency that will be obtained from investing in either the domestic or the foreign currency is certain.

B : Forward rates are found using the covered interest rate parity theorem by multiplying the spot rate by the ratio of 1 plus the risk-free interest rate in the base currency to 1 plus the risk-free interest rate in the quote currency raised to the time to maturity.

C : Forward points, when expressed as a percentage of the spot rate, can be used to determine the interest rate and inflation differential in uncovered interest rate parity.

D : Uncovered interest rate parity is a no-arbitrage theorem that incorporates each country’s inflation rate into the covered interest rate parity formula to predict future exchange rates.

Answer: A

Question 5

A Swiss chemical company is considering issuing bonds to finance its planned expansion. A risk analyst involved in the capital raising program at the company is studying the external agency rating process to gain a better understanding of the implications of agency ratings for the firm’s financing plans. Which of the following statements is correct?

A : Rating agencies produce point-in-time ratings, as these are designed to provide the best current estimate of future default probabilities.

B : Rating agencies provide outlooks to indicate the potential for a change in rating in the short-term, and use watchlists to indicate medium-term changes.

C : Empirically, changes in bond and stock prices tend to be greater in cases of ratings downgrades than ratings upgrades.

D : Agency ratings tend to produce identical default rates for companies in the same industry but located in different countries.

Answer: C

Page: 1 / 107

Total 533 Questions | Updated On: Feb 18, 2026

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