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 most accurately describes the effect of selling a loan without recourse?

A : The purchaser has the right to sell the loan back to the bank that originated the loan.

B : The loan is removed from the balance sheet of the bank that sells the loan.

C : The bank that sells the loan bears a specified percentage of the credit risk.

D : The bank that sells the loan retains a contingent liability.

Answer: B

Question 2

Two financial institutions are facing different funding issues. Bank A, a mid-size regional bank is concerned that it has a shortfall in legal reserves for the day and is seeking an alternative to address this shortfall. Bank B, a small community bank, on the other hand, has recently experienced a much greater than anticipated shortfall in long term certificates of deposit (CD) renewals due to fierce local competition for retail deposits. Bank B has traditionally used stable CDs to fund its home mortgage portfolio. What is the most appropriate funding response of each of these two institutions considering timing and the availability of non-deposit funds?

A : Bank A should issue debentures and Bank B should fund itself through the CP market.

B : Bank A should borrow from the wholesale deposit market and Bank B should fund itself through the Eurocurrency deposit market.

C : Bank A should fund itself through the commercial paper (CP) market and Bank B should borrow from the Federal funds market.

D : Bank A should borrow from the Federal funds market and Bank B should borrow from the Federal Home Loan Banks.

Answer: D

Question 3

Which of the following statements concerning the calculation of value at a node in a fixed-income binomial interest rate tree is most accurate? The value at each node is the:

A : average of the present values of the two possible values from the next period.

B : present value of the two possible values from the next period.

C : average of the future values of the two possible values from the next period.

D : sum of the present values of the two possible values from the next period.

Answer: A

Question 4

A credit analyst at an investment firm is estimating the 99% credit VaR of a 1-yearzero-coupon bond, the only debt issued by the firm. The analyst obtains relevantdata presented below:• Face value of the firm’s 1-year zero-coupon bond: CNY 630 million• The bond’s expected 1-year probability of default (PD): 6%• The bond’s 1-year recovery rate: 90%Assuming the variation of the future value of the bond is solely due to the possibilityof default, and the analyst’s estimate of the value of the bond in 1 year at the 99%confidence level is CNY 567 million, what is the bond’s implied 1-year 99% credit VaR?

A : C CNY 3.78 million

B : B CNY 3.40 million

C : A CNY 2.52 million

D : D CNY 6.30 million

Answer: C

Question 5

A significant challenge in estimating the legal loss module of an operational risk stress test is that:

A : there is a lag between the macroeconomic event itself and the incurrence of legal losses.

B : banks are minimally impacted by legal losses.

C : future litigation cases cannot be estimated.

D : operational risks and legal losses cannot be separated.

Answer: A

Page: 1 / 101

Total 503 Questions | Updated On: Feb 10, 2026

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