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

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

Question 2

An analyst is estimating whether a fund's excess return for a quarter is related to interest rates and last quarter's excess return. The regression equation is found to have unconditional heteroskedasticity and serial correlation. Which of the following is most accurate? Parameter estimates will be:

A : accurate and statistical inference about the parameters will be valid.

B : inaccurate but statistical inference about the parameters will be valid.

C : inaccurate and statistical inference about the parameters will not be valid.

D : accurate but statistical inference about the parameters will not be valid.

Answer: C

Question 3

An analyst is currently considering a portfolio consisting of two stocks. The first stock, Remba Co., has an expected return of 12% and a standard deviation of 16%. The second stock, Labs, Inc., has an expected return of 18% and a standard deviation of 25%. The correlation of returns between the two securities is 0.25.If the analyst forms a portfolio with 30% in Remba and 70% in Labs, what is the portfolio's expected return?

A : 21.5%.

B : 15.0%.

C : 16.2%.

D : 17.3%.

Answer: C

Question 4

An operational risk manager is presenting to a group of risk analysts about different techniques to model operational risk. An analyst asks the manager about the appropriate use of the power law in estimating operational losses. Which of the following would be a correct statement for the manager to make about the use of the power law?

A : It is suitable for modeling the tail of the operational loss distribution, but not for modeling the body of the distribution.

B : It implies that operational losses tend to follow a normal distribution.

C : It is more effective in modeling some types of operational risk, such as losses from fraud, than others, such as losses from natural disasters.

D : It is generally used to estimate routine operational losses which occur at a relatively high frequency.

Answer: A

Question 5

A risk analyst at a growing bank is concerned about a loan exposure to a large manufacturing company which is losing significant market share in its industry. The analyst considers the use of different credit risk transfer mechanisms, including CDS, to manage this exposure. Which of the following statements correctly describes an appropriate benefit of using CDS in this situation?

A : CDS provide an agreement to periodically revalue the loan and transfer any net value change.

B : CDS allow the bank to offset its exposure to the company with loan exposures to other manufacturing companies.

C : CDS quantify the manufacturing company’s default risk and allow the bank to monitor changes in this risk on a real-time basis.

D : CDS require the manufacturing company to pay back the loan in full at an earlier point in time.

Answer: C

Page: 1 / 107

Total 533 Questions | Updated On: Feb 18, 2026

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