Free GARP FRM-Part-2 Exam Questions

A fixed-income portfolio manager is conducting a performance analysis on anagency-MBS and the underlying pool of commercial mortgages. The managerobtains the following information:• The constant prepayment rate (CPR) of the commercial mortgages loan pool: 14.38%• Debt payments per year on the commercial mortgage loans: USD 730,000• Net operating income per year of the commercial mortgage property: USD 1,825,000The manager uses the following metrics as benchmarks for the commercial mortgage sector analysis:• Debt service coverage ratio (DSCR) of a benchmark obligor: 2.5• Single monthly mortality (SMM) rate of a benchmark security: 0.85%Which of the following statements is correct?

A group of risk managers in a newly established asset management firm is assignedto implement the risk management process that includes three fundamentaldimensions: risk planning, risk budgeting and risk monitoring. The managers startby discussing the components of and the guidelines included in the risk plan. Whichof the following statements is correct?

A credit analyst at an investment firm is estimating the 99% credit VaR of a 1-yearzero-coupon bond, the only debt issued by the firm. The analyst obtains relevantdata presented below:• Face value of the firm’s 1-year zero-coupon bond: CNY 630 million• The bond’s expected 1-year probability of default (PD): 6%• The bond’s 1-year recovery rate: 90%Assuming the variation of the future value of the bond is solely due to the possibilityof default, and the analyst’s estimate of the value of the bond in 1 year at the 99%confidence level is CNY 567 million, what is the bond’s implied 1-year 99% credit VaR?

A presentation provided to executive leadership on the top 10 risks an entity is facing should include all of the following except:

How many of the following statements regarding wrong-way risk (WWR) and right way risk (RWR) are correct?Co-movement in risk exposure and default probability producing a decline in overall risk is an example of wrong-way risk.Co-movement in risk exposure and default probability producing an increase in overall counterparty risk is an example of right-way risk.Co-movement in risk exposure and default probability producing neither a decline nor an increase in the overall counterparty risk is an example of wrong-way risk.Co-movement in risk exposure and default probability producing a decline in risk exposure but an increase in counterparty default probability is an example of rightway risk.