Free GARP FRM-Part-2 Exam Questions

An analyst at a financial institution has been asked to assess the quality ofestimating credit VaR (CVaR) of a homogenous portfolio of firms (credits) using thesingle-factor model, under which default correlation varies with the firm’s beta to themarket factor. The analyst examines the portfolio under the following assumptions:• There are 1,000 firms (credits) in the portfolio.• Each firm represents 0.1% of the portfolio.• There is no idiosyncratic risk.• Loss given default is the same for each firm in the portfolio.Based on the information provided, which of the following observations, if made bythe analyst, would be correct regarding the application of the single-factor model and its parameters?

Assuming a loan portfolio of L, a recovery rate of RR, and the percentage of losses on a portfolio less than V(T, X), which of the following formulas is used to estimate credit VaR?

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?

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?

Which of the following statements most accurately describes the effect of selling a loan without recourse?