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: Jan 12, 2026

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Question 1

Kris Gaines, Treasurer at Palm Air Bank and Trust, is considering ways to meet a funding gap created by greater than expected loan demand. Palm Air is a medium sized bank located in Florida. The funding gap is approximately $850,000. Gaines is choosing between several nondepository funding types. The funds are needed immediately. Which type of funding is most appropriate in this situation?

A : Federal funds borrowing.

B : Negotiable certificates of deposit (CDs).

C : Commercial paper.

D : Eurodollar deposits.

Answer: A

Question 2

Which of the following risks is specifically recognized by the incremental risk charge (IRC)?

A : Jump-to-default risk, as measured by 99% VaR, because a default could cause a significant loss for the bank.

B : Equity price risk, because a change in market prices could materially impact mark-to-market accounting for risk.

C : Expected shortfall risk, because it is important to understand the amount of loss potential in the tail.

D : Interest rate risk, as measured by 97.5% expected shortfall, because an increase in interest rates could cause a significant loss for the bank.

Answer: A

Question 3

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 4

A risk analyst is reviewing his bank’s credit risk management policies. He notes that banks have limits on related-party financing decisions. His colleague agrees and correctly adds that:

A : the term single client only refers to a legal person.

B : acceptances and letters of credit should be factored into the risk exposure of a single client.

C : all banks have a limit of 10% of capital for a single client.

D : loan collateral should be included in exposure sizing using mark-to-market principles.

Answer: B

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: Jan 12, 2026

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