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

A regional bank wants to improve its operational resilience to help keep pace with emerging best practices in this area. A consultant hired by the bank recommends that it establish a set of impact tolerances to improve its resilience. Which of the following correctly describes a potential benefit to the bank of establishing an impact tolerance?

A : It will help the bank optimize its allocation of resources to its most important business services.

B : It will enhance the bank’s ability to identify and limit concentration risk.

C : It will accurately estimate the severity of a potential disruption to an operational process and the amount of downtime that would result.

D : It will prevent failures of critical operational processes and the systems that support these processes.

Answer: A

Question 2

Liz Parker is a junior quantitative analyst who is preparing a report dealing with credit migration. An excerpt of her report contains the following statements:I. Future default probability will likely increase over time, especially for periods far into the future.II. When computing the default probability of a counterparty under a risk-neutral measure, we need to first determine the actual default probability.Which of Parker’s statements is (are) correct?

A : Neither I nor II.

B : II only.

C : Both I and II.

D : I only.

Answer: A

Question 3

A junior risk analyst at a consulting firm is reviewing the operational arrangements of bilateral netting and central clearing of derivative trades. The analyst examines the following bilateral trades of three firms:• Firm 1’s exposure to Firm 2: AUD 90 million• Firm 2’s exposure to Firm 1: AUD 60 million• Firm 1’s exposure to Firm 3: AUD 12 million• Firm 3’s exposure to Firm 1: AUD 70 million• Firm 2’s exposure to Firm 3: AUD 57 million• Firm 3’s exposure to Firm 2: AUD 0 millionWhich of the following statements is correct?

A : Under bilateral netting, Firm 1’s net exposure is AUD 28 million.

B : Under bilateral netting, Firm 2’s net exposure is AUD 27 million.

C : Under central clearing, the CCP’s net exposure is AUD 28 million.

D : Under central clearing, Firm 3’s net exposure is AUD 0 million.

Answer: C

Question 4

A large bank is reviewing its processes and procedures to manage operational risk in accordance with best practices established by the Basel Committee. In implementing the three lines of defense model, which of the following statements is correct?

A : The corporate operational risk function, as part of the second line of defense, should challenge risk inputs from business line managers.

B : The internal audit function should serve as the first line of defense and continually validate operational procedures used by the business lines.

C : The corporate operational risk function should serve as the third line of defense and validate model assumptions made by senior management.

D : Business line managers, as part of the first line of defense, should provide a credible challenge to the internal audit function.

Answer: A

Question 5

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?

A : D A Type II error is committed when a correctly specified model is rejected.

B : committing a Type II error regardless of the probability of committing a Type I error.

C : C A Type I error is committed when an incorrectly specified model is accepted.

D : increases and the level of significance is held constant.

Answer: D

Page: 1 / 101

Total 503 Questions | Updated On: Feb 10, 2026

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