Free GARP FRM-Part-2 Exam Questions

If the unconditional default probability of a Ba-rated bond during Year 3 is 1.914% and the probability of survival through Year 2 is 97.413%, the probability of a default during Year 3, conditional on no earlier default, is closest to:

Which of the following statements is not a motivation for pricing counterparty risk?

A portfolio manager at a US-based hedge fund has been searching for potentialreturn opportunities in the environment of declining global interest rates experiencedafter the global financial crisis (GFC) of 2007-2009. The manager identifies theexistence of a positive cross-currency basis between two currencies and notes thatthis positive basis has persisted since the GFC. What is the most appropriateexplanation for this persistence?

The CRO of a regional mortgage lender has asked an enterprise risk manager todevelop a set of policies and procedures for the firm’s operational risk reporting. Themanager considers appropriate policies for the governance of the firm’s riskreporting framework and also assesses how the firm should structure its risk reportsfor different stakeholder groups and organizational functions. Which of the followingwould be most appropriate for the manager to recommend?

When incorporating netting and collateralization into the CVA calculation, which of the following statements is incorrect?I. Netting increases the CVA price because it reduces exposure when trades are settled.II. Collateralization does not change the CVA because it only changes the counterparty’s expected exposure.