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 describes the best approach for liquidity transfer pricing?

A : The matched-maturity marginal approach is preferred because it quantifies liquidity risk premiums across all maturities.

B : The separate average cost of funds approach is preferred to accurately account for business units with large trading activities.

C : The pooled average cost of funds approach is more appropriate for banks with numerous business units.

D : Zero cost of funds approach is preferred in cases in which swap rates are unknown and undeterminable.

Answer: A

Question 2

Which of the following statements is most accurate regarding reduced-form versus structural models used to estimate default correlation?

A : Structural models tend to take a long time to process.

B : Reduced-form models are more computationally intensive.

C : Economic cycle impacts on default correlation trends are best reflected in structural models.

D : Reduced-form models allow for very high default correlations.

Answer: A

Question 3

All of the following items are generally considered advantages of non-parametric estimation methods except:

A : ability to accommodate skewed data.

B : availability of data.

C : little or no reliance on covariance matrices.

D : use of historical data.

Answer: D

Question 4

A risk analyst is implementing an enterprise risk management system at a bank. During the process, the analyst takes an inventory of risks faced by the bank and categorizes these risks as market, credit, or operational risks. Which of the following observations of the bank’s data should be considered unexpected if compared to similar industry data?

A : The operational risk loss distribution is symmetric and fat-tailed.

B : The operational risk loss distribution has many small losses, and therefore a relatively low mode.

C : The market risk distribution is symmetric.

D : The credit risk distribution is asymmetric and fat-tailed.

Answer: A

Question 5

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

Page: 1 / 101

Total 503 Questions | Updated On: Feb 10, 2026

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