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 22, 2026

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Question 1

The CRO at a bank wants to strengthen the bank’s capability to defend itself against emerging cyber-threats. To help achieve this goal, the CRO is assessing the current range of practices regarding the sharing of cybersecurity information between different types of institutions, as well as the potential benefits from sharing information. Which of the following statements would be most appropriate for the CRO to make?

A : Existing peer-sharing mechanisms among banks focus on the exchange of information related to cyber-security incidents, but such information is generally not shared from banks to regulators.

B : The scope and depth of information-sharing practices among banks may significantly vary between financial markets, depending on the level of trust among participating banks.

C : Information-sharing among different national regulators has evolved significantly over the past several years and is now a widespread practice at a large majority of jurisdictions.

D : The sharing of cybersecurity information among banks is less frequently observed and generally considered to be less effective than other cyber-security information-sharing practices.

Answer: B

Question 2

Assume that a credit rating of A has a default probability of 0.07%, and a credit rating of AA has a default probability of 0.04%. If a bank is seeking a target rating of A, it will want to ensure that its economic capital will cover unexpected losses at a confidence level of:

A : 96.00%.

B : 93.00%.

C : 99.93%.

D : 99.96%.

Answer: C

Question 3

As part of a broader assessment of migration risk, a risk analyst at a rating agency examines the observed defaults of a given rating class of corporate issuers. The rating class contained 348 names (number of issuers) at the end of 2016, which was the time of origination. The number of issuers that have not defaulted over the past 3 years is shown in the table below:Year AND Number of non-defaulted names at end of year2016: 3482017: 3392018: 3332019: 329Assuming no new issuers were added to the rating class throughout the holding period, what is the estimate of the 1-year marginal probability of default in the year 2019?

A : 1.15%

B : 1.20%

C : 1.72%

D : 1.77%

Answer: A

Question 4

Which of the following statements describes the best approach for liquidity transfer pricing?

A : The matched-maturity marginal approach is preferred because it quantifies liquidity risk premiums across all maturities.

B : The separate average cost of funds approach is preferred to accurately account for business units with large trading activities.

C : The pooled average cost of funds approach is more appropriate for banks with numerous business units.

D : Zero cost of funds approach is preferred in cases in which swap rates are unknown and undeterminable.

Answer: A

Question 5

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

Page: 1 / 101

Total 503 Questions | Updated On: Apr 22, 2026

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