Free GARP FRM-Part-2 Exam Questions

A group of risk managers in a newly established asset management firm is assignedto implement the risk management process that includes three fundamentaldimensions: risk planning, risk budgeting and risk monitoring. The managers startby discussing the components of and the guidelines included in the risk plan. Whichof the following statements is correct?

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?

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?

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?

How many of the following statements regarding wrong-way risk (WWR) and right way risk (RWR) are correct?Co-movement in risk exposure and default probability producing a decline in overall risk is an example of wrong-way risk.Co-movement in risk exposure and default probability producing an increase in overall counterparty risk is an example of right-way risk.Co-movement in risk exposure and default probability producing neither a decline nor an increase in the overall counterparty risk is an example of wrong-way risk.Co-movement in risk exposure and default probability producing a decline in risk exposure but an increase in counterparty default probability is an example of rightway risk.