Free GARP FRM-Part-2 Exam Questions

Which of the following statements about expected loss (EL) and unexpected loss (UL) is true?

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?

Which of the following statements regarding scenario analysis workshops and brainstorming sessions at a large bank is most accurate?

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 fund manager owns a portfolio of options on TUV, a non-dividend paying stock. The portfolio is made up of 5,000 deep in-the-money call options on TUV and 20,000 deep out-of-the-money call options on TUV. The portfolio also contains 10,000 forward contracts on TUV. Currently, TUV is trading at USD 52. Assuming 252 trading days in a year, the volatility of TUV is 12% per year, and that each of the option and forward contracts is on one share of TUV, which of the following amounts would be closest to the 1-day 99% VaR of the portfolio?