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 12, 2026

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Question 1

Due to lack of available investment opportunities in public markets, a pension fund decided to hire an investment consultant to assess the potential for investing in illiquid markets in the US. Which of the following characteristics of illiquid markets in the US should the consultant present to the pension managers?

A : During the 2008-2009 Financial Crisis, liquidity dried up in repo markets but not in commercial paper markets.

B : The traditional public, liquid markets of stocks and bonds are larger than the total wealth held in illiquid assets.

C : The share of illiquid assets in institutional portfolios has generally gone up in the past 2 decades.

D : Municipal bonds are usually more liquid than pinksheet over-the-counter equities.

Answer: C

Question 2

The chief investment officer (CIO) of a large university endowment fund isconsidering adding some illiquid assets to improve the performance of theuniversity’s investment portfolio. The CIO asks an investment manager to prepare areport discussing the characteristics of illiquid asset returns. The manager reviewsthe dynamics of illiquid assets and the determinants of their returns. Which of thefollowing is a correct statement for the manager to include in the report?

A : returns of the entire population of funds.

B : returns of those funds that have achieved a return above a required threshold.

C : returns of those funds that continue to remain in business over a given time period are considered.

D : accurate beta and correlation estimates.

Answer: A

Question 3

An option pricing analyst at an investment bank has been asked to write a reportexamining the relationship between option prices and implied volatility curves. Theanalyst notes that the implied volatility curves of different underlying assets oftenhave different shapes and explains the reasons why this occurs. Which of thefollowing statements can correctly be included in the report?

A : prices in out-of-the-money puts relative to out-of-the-money calls, which creates a

B : announcements on foreign exchange rates leads to higher prices, and higher

C : to the higher probability of a price change of between one and two standard

D : probability of a greater than three standard deviation price change than would be

Answer: A

Question 4

An analyst at a fixed-income investment company is evaluating different ways thecompany uses to estimate the VaR of its corporate bond portfolios. The portfoliosconsist of a large number of bonds with a wide range of maturities. The analystexamines the possibility of using a mapping approach to simplify the estimationprocess. Which of the following statements would the analyst be correct to makeregarding the approaches to mapping fixed-income portfolios?

A : undiversified VaR estimated using the duration mapping approach due to an adjustment made for correlations.

B : a zero-coupon bond whose maturity equals the duration of the portfolio.

C : VaR estimated using the duration mapping approach since it does not account for

D : of a portfolio since it ignores coupon payments and any risk associated with them.

Answer: B

Question 5

Which of the following risks is specifically recognized by the incremental risk charge (IRC)?

A : Jump-to-default risk, as measured by 99% VaR, because a default could cause a significant loss for the bank.

B : Equity price risk, because a change in market prices could materially impact mark-to-market accounting for risk.

C : Expected shortfall risk, because it is important to understand the amount of loss potential in the tail.

D : Interest rate risk, as measured by 97.5% expected shortfall, because an increase in interest rates could cause a significant loss for the bank.

Answer: A

Page: 1 / 101

Total 503 Questions | Updated On: Jan 12, 2026

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