Free GARP FRM-Part-2 Exam Questions

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?

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?

An investment bank has a one-way credit support annex (CSA) on a bilateral transaction with a hedge fund counterparty. Under the terms of the CSA, the mark-to-market value of the transaction forms the basis of the hedge fund’s collateral requirements, which are provided below:Value (CNY)Mark-to-market value of net exposure 25,000,000Mark-to-market value of collateral posted 10,800,000Threshold amount 14,000,000Minimum transfer amount 2,500,000Rounding amount 10,000Assuming the net exposure increases to CNY 27,000,000 and the mark-to-market value of collateral posted has not changed, how much additional collateral will the hedge fund have to post?

Which of the following reasons is least likely a consideration for regulators when imposing fines on financial institutions against financial breaches and violations?

A fixed-income portfolio manager is conducting a performance analysis on anagency-MBS and the underlying pool of commercial mortgages. The managerobtains the following information:• The constant prepayment rate (CPR) of the commercial mortgages loan pool: 14.38%• Debt payments per year on the commercial mortgage loans: USD 730,000• Net operating income per year of the commercial mortgage property: USD 1,825,000The manager uses the following metrics as benchmarks for the commercial mortgage sector analysis:• Debt service coverage ratio (DSCR) of a benchmark obligor: 2.5• Single monthly mortality (SMM) rate of a benchmark security: 0.85%Which of the following statements is correct?