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: Jan 29, 2026

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Question 1

At inception, the tranches in a synthetic CDO are priced to earn a spread that is:

A : higher for senior tranches, as they represent a larger notional principal.

B : aggregate in amount to the premium paid to binary CDSs.

C : consistent with their seniority.

D : equal for each tranche.

Answer: C

Question 2

Which of the following statements most accurately describes the effect of selling a loan without recourse?

A : The purchaser has the right to sell the loan back to the bank that originated the loan.

B : The loan is removed from the balance sheet of the bank that sells the loan.

C : The bank that sells the loan bears a specified percentage of the credit risk.

D : The bank that sells the loan retains a contingent liability.

Answer: B

Question 3

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 4

Which of the following actions is not an advantage of the central counterparty (CCP) in the centralized clearing process?

A : Eliminate counterparty risk.

B : Risk reduction through multilateral netting.

C : Improve operational efficiency.

D : Loss mutualization.

Answer: A

Question 5

A newly hired risk analyst at a large investment bank is examining how financial correlation risk affects the bank’s portfolios. The bank holds portfolios consisting of different types of assets and enters into various hedging contracts with multiple counterparties. Which of the following statements would the analyst be correct to make?

A : The buyer of a CDS faces wrong-way risk when there is a positive default correlation between the reference asset and the CDS counterparty.

B : The risk-adjusted return of a portfolio typically increases when correlations of assets in the portfolio increase.

C : Correlation risk is highest during periods of relatively benign market movements when correlations are difficult to predict.

D : Dynamic correlation risk in a portfolio of pairs trades is most appropriately estimated using Gaussian copulas.

Answer: A

Page: 1 / 101

Total 503 Questions | Updated On: Jan 29, 2026

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