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 13, 2026

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Question 1

Which of the following statements best describe a difference between the standardized approach and older operational risk capital approaches?

A : The AMA was more flexible in its application than the standardized approach.

B : The advanced measurement approach (AMA) was introduced as part of the Basel III revisions.

C : The standardized approach uses a model-based methodology, while the AMA was more flexible and principle-based.

D : The standardized approach accounts for internal loss experiences that were not factored into the AMA.

Answer: A

Question 2

A newly hired risk analyst at a large investment bank is examining how financial correlation risk affects the bank’s portfolios. The bank holds portfolios consisting of different types of assets and enters into various hedging contracts with multiple counterparties. Which of the following statements would the analyst be correct to make?

A : The buyer of a CDS faces wrong-way risk when there is a positive default correlation between the reference asset and the CDS counterparty.

B : The risk-adjusted return of a portfolio typically increases when correlations of assets in the portfolio increase.

C : Correlation risk is highest during periods of relatively benign market movements when correlations are difficult to predict.

D : Dynamic correlation risk in a portfolio of pairs trades is most appropriately estimated using Gaussian copulas.

Answer: A

Question 3

Brett Doninger recently placed an order to sell a stock when the market price was $42.12. The market was volatile and, by the time Doninger’s broker sold the stock, the price had fallen to $41.88. In the market, this phenomenon is known as:

A : the spread risk factor.

B : transactional imbalance.

C : adverse selection.

D : slippage.

Answer: D

Question 4

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 reduction in yield on the MBS will likely be higher compared to that on a

B : borrower’s ability to repay the mortgage loan is weaker than that of a comparable

C : the reduction in yield on the MBS will likely be lower compared to that on a

D : borrower’s ability to repay the mortgage loan is stronger than that of a comparable

Answer: A

Question 5

A risk analyst is evaluating an investment portfolio using the Fama-French threefactormodel. The analyst regresses thirty years of weekly portfolio returns againstthe three factors of the model. The analyst obtains the following regression results:Alpha 0.10Market coefficient 0.52SMB coefficient 0.18HML coefficient -0.70Assuming all estimated coefficients are statistically significant, which of the following is correct?

A : indicates that the portfolio moves together with large-cap stocks.

B : indicates that the portfolio moves together with growth stocks.

C : indicates that the portfolio moves together with growth stocks.

Answer: C

Page: 1 / 101

Total 503 Questions | Updated On: Jan 13, 2026

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