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: Feb 10, 2026

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Question 1

Which of the following statements is not a motivation for pricing counterparty risk?

A : Counterparty risk pricing should account for risk mitigants.

B : Pricing bilateral derivatives contracts.

C : Best practices organize pricing responsibilities in the organization.

D : Accurate pricing should only account for the cost of the trade.

Answer: D

Question 2

A presentation provided to executive leadership on the top 10 risks an entity is facing should include all of the following except:

A : descriptions of the risks.

B : inherent and residual elements of each risk.

C : timelines for risk eliminations.

D : a ranked order based on likelihood and severity.

Answer: C

Question 3

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 4

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?

A : proprietary trading activities.

B : basis.

C : decline in the overall level of interest rates in the global economy.

D : typically eliminate counterparty risks.

Answer: B

Question 5

How many of the following statements regarding wrong-way risk (WWR) and right way risk (RWR) are correct?Co-movement in risk exposure and default probability producing a decline in overall risk is an example of wrong-way risk.Co-movement in risk exposure and default probability producing an increase in overall counterparty risk is an example of right-way risk.Co-movement in risk exposure and default probability producing neither a decline nor an increase in the overall counterparty risk is an example of wrong-way risk.Co-movement in risk exposure and default probability producing a decline in risk exposure but an increase in counterparty default probability is an example of rightway risk.

A : Two.

B : Three.

C : None.

D : All.

Answer: C

Page: 1 / 101

Total 503 Questions | Updated On: Feb 10, 2026

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