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: Jan 29, 2026

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Question 1

Sovereign Bank has an internal audit department, but the bank CEO hires an external auditor to review their financial statements and assess their internal control system. The audit firm is most likely considered to be which line of defense?

A : Third.

B : Second.

C : Fourth.

D : First.

Answer: C

Question 2

A regional bank wants to improve its operational resilience to help keep pace with emerging best practices in this area. A consultant hired by the bank recommends that it establish a set of impact tolerances to improve its resilience. Which of the following correctly describes a potential benefit to the bank of establishing an impact tolerance?

A : It will help the bank optimize its allocation of resources to its most important business services.

B : It will enhance the bank’s ability to identify and limit concentration risk.

C : It will accurately estimate the severity of a potential disruption to an operational process and the amount of downtime that would result.

D : It will prevent failures of critical operational processes and the systems that support these processes.

Answer: A

Question 3

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 : The prepayments on the commercial mortgage measured by the CPR shows thatthe reduction in yield on the MBS will likely be higher compared to that on abenchmark security.

B : The estimated DSCR of the commercial mortgage implies that the mortgageborrower’s ability to repay the mortgage loan is weaker than that of a comparablebenchmark obligor.

C : The prepayments on the commercial mortgage measured by the CPR shows thatthe reduction in yield on the MBS will likely be lower compared to that on abenchmark security.

D : The estimated DSCR of the commercial mortgage implies that the mortgageborrower’s ability to repay the mortgage loan is stronger than that of a comparablebenchmark obligor.

Answer: A

Question 4

A model validation team at a bank is backtesting the bank’s VaR model. Inpreparation for the backtest, one of the team members expresses a concern that thevalidation process could result in the team committing a Type I error or a Type IIerror and discusses the characteristics of these errors with the team. Which of thefollowing is correct regarding Type I and Type II errors?

A : D A Type II error is committed when a correctly specified model is rejected.

B : committing a Type II error regardless of the probability of committing a Type I error.

C : C A Type I error is committed when an incorrectly specified model is accepted.

D : increases and the level of significance is held constant.

Answer: D

Question 5

Bank Macatawa has a $150 million exposure to Holland Metals Co. The exposure is secured by $125 million of collateral consisting of AA+-rated bonds. Holland Metals Co. is unrated. The collateral risk weight is 20%. Bank Macatawa assumes an adjustment to the exposure of +15% to allow for possible increases in the exposure and allows for a −25% change in the value of the collateral. Risk-weighted assets for the exposure are closest to:

A : $93.75 million.

B : $172.50 million.

C : $118.13 million.

D : $78.75 million.

Answer: D

Page: 1 / 101

Total 503 Questions | Updated On: Jan 29, 2026

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