Free GARP FRM-Part-2 Exam Questions

The board of directors of a fast-growing US-based bank is discussing a report offindings and recommendations issued after a recent regulatory review of the bank’srisk management framework. A board member notes that the regulators haveidentified deficiencies in the bank’s model validation process, and recommends thatthe CRO develop a plan for improvement in this area. The CRO consults theFederal Reserve guidelines for examples of best practices, and identifies ways thatthe bank can improve its validation approaches to conform with the guidelines.Which of the following recommendations is appropriate for the CRO to make?

Within the context of the three lines of defense model, risk champions (or risk specialists) are most likely to be included in which lines?

A portfolio manager at a US-based hedge fund has been searching for potentialreturn opportunities in the environment of declining global interest rates experiencedafter the global financial crisis (GFC) of 2007-2009. The manager identifies theexistence of a positive cross-currency basis between two currencies and notes thatthis positive basis has persisted since the GFC. What is the most appropriateexplanation for this persistence?

The Black-Scholes-Merton option pricing model is not appropriate for valuing options on corporate bonds because corporate bonds:

A junior risk analyst at a consulting firm is reviewing the operational arrangements of bilateral netting and central clearing of derivative trades. The analyst examines the following bilateral trades of three firms:• Firm 1’s exposure to Firm 2: AUD 90 million• Firm 2’s exposure to Firm 1: AUD 60 million• Firm 1’s exposure to Firm 3: AUD 12 million• Firm 3’s exposure to Firm 1: AUD 70 million• Firm 2’s exposure to Firm 3: AUD 57 million• Firm 3’s exposure to Firm 2: AUD 0 millionWhich of the following statements is correct?