Free GARP FRM-Part-2 Exam Questions

In which of the New Initiative Risk Assessment Process (NIRAP) business case topics would you most likely find an analysis of project costs and funding arrangements?

A researcher at a national regulatory agency is examining the use of thestandardized ratings-based approach (SA) and the advanced internal ratingsbased(A-IRB) approach in determining credit risk capital. The researcherevaluates the implications of applying these approaches on two different banks,Global Bank and Resource Bank. Information about the credit exposures of the two banks is provided below:• Global Bank lends to large global corporations that have highly diversebusiness lines by providing sizable long-dated unsecured credit facilities.• Resource Bank lends to oil and gas producers in its region, most of which have small-scale operations.Which of the following is the most appropriate conclusion for the researcher to reach?

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 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 derivative trading firm sells a European-style call option on stock JKJ with a time to expiration of 9 months, a strike price of EUR 45, an underlying asset price of EUR 67, and implied annual volatility of 27%. The annual risk-free interest rate is 2.5%. What is the trading firm’s counterparty credit exposure from this transaction?