Free GARP FRM-Part-2 Exam Questions

Become GARP Certified with updated FRM-Part-2 exam questions and correct answers

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Total 503 Questions | Updated On: Jul 08, 2024

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Question 1

The CRO of a hedge fund asks the risk team to develop a term-structure model forfitting interest rates that is appropriate to use in the fund’s options pricing practice.The risk team is evaluating a Ho-Lee model with time-dependent drift, and a Cox-Ingersoll-Ross model with time-dependent volatility. Which of the following is acorrect description of the specified model?

A : In the Cox-Ingersoll-Ross model, the basis-point volatility of the short-term rate ispresumed to be proportional to the square root of the rate.

B : In the Ho-Lee model, when the short-term rate is above its long-run equilibriumvalue, the drift is presumed to be negative.

C : In the Cox-Ingersoll-Ross model, the volatility of the short-term rate is presumed todecline exponentially to a constant long-run level.

D : In the Ho-Lee model, the drift of the interest rate process is presumed to beconstant.

Answer: A

Question 2

Which of the following statements regarding the differences between Basel I, Basel II.5, and the Fundamental Review of the Trading Book (FRTB) for market risk capital calculations is incorrect?

A : FRTB requires the calculation of expected shortfall with a 97.5% confidence level.

B : Both Basel I and Basel II.5 require calculation of VaR with a 99% confidence level.

C : FRTB requires adding a stressed VaR measure to complement the expected shortfall calculation.

D : The 10-day time horizon for market risk capital proposed under Basel I incorporates a recent period of time, which typically ranges from one to four years.

Answer: C

Question 3

The CRO at a bank wants to strengthen the bank’s capability to defend itself against emerging cyber-threats. To help achieve this goal, the CRO is assessing the current range of practices regarding the sharing of cybersecurity information between different types of institutions, as well as the potential benefits from sharing information. Which of the following statements would be most appropriate for the CRO to make?

A : Existing peer-sharing mechanisms among banks focus on the exchange of information related to cyber-security incidents, but such information is generally not shared from banks to regulators.

B : The scope and depth of information-sharing practices among banks may significantly vary between financial markets, depending on the level of trust among participating banks.

C : Information-sharing among different national regulators has evolved significantly over the past several years and is now a widespread practice at a large majority of jurisdictions.

D : The sharing of cybersecurity information among banks is less frequently observed and generally considered to be less effective than other cyber-security information-sharing practices.

Answer: B

Question 4

The treasurer of a regional bank is concerned that the bank may not be properlycompensated for the services it provides to its depositors and asks a manager toassess a price for these services. The manager applies cost-plus pricing for alldepository services and uses the following data for pricing the automated tellermachine (ATM) service:• Operating expense per ATM visit: USD 0.25• Estimated overhead cost allocated per ATM visit: USD 0.35• Profit required per ATM visit: USD 0.05• The bank’s target return on capital: 15%What is the correct amount for the bank to charge per ATM visit according to the cost-plus pricing model?

A : D USD 0.74

B : B USD 0.65

C : A USD 0.30

D : C USD 0.70

Answer: B

Question 5

Which of the following methods is not one of the three approaches for mapping a portfolio of fixed-income securities onto risk factors?

A : Cash flow mapping.

B : Present value mapping.

C : Duration mapping.

D : Principal mapping.

Answer: B

Page: 1 / 101

Total 503 Questions | Updated On: Jul 08, 2024

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