Free GARP FRM-Part-2 Exam Questions

Question 1

The board of directors of a fast-growing US-based bank is discussing a report offindings and recommendations issued after a recent regulatory review of the bank’srisk management framework. A board member notes that the regulators haveidentified deficiencies in the bank’s model validation process, and recommends thatthe CRO develop a plan for improvement in this area. The CRO consults theFederal Reserve guidelines for examples of best practices, and identifies ways thatthe bank can improve its validation approaches to conform with the guidelines.Which of the following recommendations is appropriate for the CRO to make?

A : the assumptions that were initially provided by the vendor.

B : model has been successfully completed.

C : management framework to also validate and backtest the models.

D : than a process that conducts reviews at specific points in time.

Answer: D

Question 2

An analyst at a fixed-income investment company is evaluating different ways thecompany uses to estimate the VaR of its corporate bond portfolios. The portfoliosconsist of a large number of bonds with a wide range of maturities. The analystexamines the possibility of using a mapping approach to simplify the estimationprocess. Which of the following statements would the analyst be correct to makeregarding the approaches to mapping fixed-income portfolios?

A : undiversified VaR estimated using the duration mapping approach due to an adjustment made for correlations.

B : a zero-coupon bond whose maturity equals the duration of the portfolio.

C : VaR estimated using the duration mapping approach since it does not account for

D : of a portfolio since it ignores coupon payments and any risk associated with them.

Answer: B

Question 3

Which of the following statements regarding risk assessment is most accurate?

A : Risk and control self-assessments (RCSAs) are a good mixture of qualitative and quantitative aspects.

B : The main purpose of risk assessment is to prioritize risk management and risk mitigation responses.

C : When backtesting the results of risk assessment against past incident experience, there is a tendency to underestimate the impact of an operational risk event.

D : When backtesting the results of risk assessment against past incident experience, there is a tendency to overestimate the likelihood of an operational risk event.

Answer: B

Question 4

The board of directors of a fast-growing US-based bank is discussing a report offindings and recommendations issued after a recent regulatory review of the bank’srisk management framework. A board member notes that the regulators haveidentified deficiencies in the bank’s model validation process, and recommends thatthe CRO develop a plan for improvement in this area. The CRO consults theFederal Reserve guidelines for examples of best practices, and identifies ways thatthe bank can improve its validation approaches to conform with the guidelines.Which of the following recommendations is appropriate for the CRO to make?

A : the assumptions that were initially provided by the vendor.

B : model has been successfully completed.

C : management framework to also validate and backtest the models.

D : than a process that conducts reviews at specific points in time.

Answer: D

Question 5

The CRO at a bank wants to strengthen the bank’s capability to defend itself against emerging cyber-threats. To help achieve this goal, the CRO is assessing the current range of practices regarding the sharing of cybersecurity information between different types of institutions, as well as the potential benefits from sharing information. Which of the following statements would be most appropriate for the CRO to make?

A : Existing peer-sharing mechanisms among banks focus on the exchange of information related to cyber-security incidents, but such information is generally not shared from banks to regulators.

B : The scope and depth of information-sharing practices among banks may significantly vary between financial markets, depending on the level of trust among participating banks.

C : Information-sharing among different national regulators has evolved significantly over the past several years and is now a widespread practice at a large majority of jurisdictions.

D : The sharing of cybersecurity information among banks is less frequently observed and generally considered to be less effective than other cyber-security information-sharing practices.

Answer: B