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: Apr 22, 2026

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Question 1

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 2

The chief investment officer (CIO) of a large university endowment fund isconsidering adding some illiquid assets to improve the performance of theuniversity’s investment portfolio. The CIO asks an investment manager to prepare areport discussing the characteristics of illiquid asset returns. The manager reviewsthe dynamics of illiquid assets and the determinants of their returns. Which of thefollowing is a correct statement for the manager to include in the report?

A : returns of the entire population of funds.

B : returns of those funds that have achieved a return above a required threshold.

C : returns of those funds that continue to remain in business over a given time period are considered.

D : accurate beta and correlation estimates.

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

Bank Macatawa has a $150 million exposure to Holland Metals Co. The exposure is secured by $125 million of collateral consisting of AA+-rated bonds. Holland Metals Co. is unrated. The collateral risk weight is 20%. Bank Macatawa assumes an adjustment to the exposure of +15% to allow for possible increases in the exposure and allows for a −25% change in the value of the collateral. Risk-weighted assets for the exposure are closest to:

A : $93.75 million.

B : $172.50 million.

C : $118.13 million.

D : $78.75 million.

Answer: D

Question 5

Which of the following trading instruments would have the most beneficial effect on netting?

A : Equity options.

B : Futures.

C : Options with up-front premiums.

D : FX options.

Answer: B

Page: 1 / 101

Total 503 Questions | Updated On: Apr 22, 2026

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