Free GARP FRM-Part-2 Exam Questions

Become GARP Certified with updated FRM-Part-2 exam questions and correct answers

Page: 1 / 101

Total 503 Questions | Updated On: Apr 22, 2026

Add To Cart

Question 1

An analyst at a commercial bank is evaluating how the bank applies historicalsimulation (HS) to estimate VaR and ES. The analyst focuses on the approachesused for weighting past return observations, including the age-weighted, volatilityweighted,correlation-weighted, and filtered HS approaches. Which of the followingstatements is correct regarding the given weighting approach?

A : The filtered HS approach allows the historical returns data to be trimmed orcustomized based on day of the week, magnitude of return, or any othercharacteristic of the data.

B : The correlation-weighted approach uses matrix multiplication to adjust historicalportfolio returns so that these returns reflect current volatilities and current correlations.

C : The volatility-weighted approach adjusts historical returns in the sample byincreasing them if the historical volatility forecast was higher than the currentvolatility forecast, and decreasing them if the historical volatility forecast was lowerthan the current volatility forecast.

D : The age-weighted approach typically specifies that observations that occurred afterthe cutoff date are given an equal weight while observations that occurred beforethe cutoff date are given a weight of zero.

Answer: B

Question 2

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 3

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 4

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

Question 5

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

Page: 1 / 101

Total 503 Questions | Updated On: Apr 22, 2026

Add To Cart