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 28, 2026

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Question 1

The CRO of a hedge fund asks the risk team to develop a term-structure model forfitting interest rates that is appropriate to use in the fund’s options pricing practice.The risk team is evaluating a Ho-Lee model with time-dependent drift, and a Cox-Ingersoll-Ross model with time-dependent volatility. Which of the following is acorrect description of the specified model?

A : In the Cox-Ingersoll-Ross model, the basis-point volatility of the short-term rate ispresumed to be proportional to the square root of the rate.

B : In the Ho-Lee model, when the short-term rate is above its long-run equilibriumvalue, the drift is presumed to be negative.

C : In the Cox-Ingersoll-Ross model, the volatility of the short-term rate is presumed todecline exponentially to a constant long-run level.

D : In the Ho-Lee model, the drift of the interest rate process is presumed to beconstant.

Answer: A

Question 2

An option pricing analyst at an investment bank has been asked to write a reportexamining the relationship between option prices and implied volatility curves. Theanalyst notes that the implied volatility curves of different underlying assets oftenhave different shapes and explains the reasons why this occurs. Which of thefollowing statements can correctly be included in the report?

A : prices in out-of-the-money puts relative to out-of-the-money calls, which creates a

B : announcements on foreign exchange rates leads to higher prices, and higher

C : to the higher probability of a price change of between one and two standard

D : probability of a greater than three standard deviation price change than would be

Answer: A

Question 3

Which of the following statements regarding the differences between Basel I, Basel II.5, and the Fundamental Review of the Trading Book (FRTB) for market risk capital calculations is incorrect?

A : FRTB requires the calculation of expected shortfall with a 97.5% confidence level.

B : Both Basel I and Basel II.5 require calculation of VaR with a 99% confidence level.

C : FRTB requires adding a stressed VaR measure to complement the expected shortfall calculation.

D : The 10-day time horizon for market risk capital proposed under Basel I incorporates a recent period of time, which typically ranges from one to four years.

Answer: C

Question 4

A UK-based retail brokerage firm has recently experienced rapid growth through aseries of acquisitions and plans to improve its operational resilience in order tocomply with new requirements issued by national regulators. The CRO asks anoperational risk manager to assess best practices in this area and to suggestpotential actions that the firm should take to meet this objective. Which of thefollowing actions would be most appropriate for the manager to recommend in orderto comply with the regulatory guidelines concerning operational resilience forimportant business services?

A : remote backup capabilities so the platform can continue to function during an outage.

B : capital cushion against potentially extreme operational losses.

C : acquired firms into a single firm-wide process.

D : representatives to further enhance their productivity.

Answer: A

Question 5

A bank employee has been manipulating suspense (transitory) accounts for a prolonged time, and this event was determined to be a significant operational incident. Which of the following time intervals in terms of the operational incident date is most likely to be the longest?

A : Date of reporting to date of accounting.

B : Date of occurrence to date of discovery.

C : Date of discovery to date of reporting.

D : Date of occurrence to date of reporting.

Answer: D

Page: 1 / 101

Total 503 Questions | Updated On: Apr 28, 2026

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