Free GARP FRM-Part-2 Exam Questions

Which of the following statements most accurately reflects the time horizons typically used for market VaR and credit VaR calculations?

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 portfolio manager is revising an equity portfolio with the goal of attaining theoptimal portfolio on the portfolio’s efficient frontier. The manager believes this goalcan be achieved by replacing a stock in the portfolio with a new stock that is not partof the existing portfolio and keeping the portfolio value constant. The managerconsiders the following alternative actions:• Action 1: Sell the stock with the highest marginal VaR and purchase anequivalent value of a new stock that would have the lowest marginal VaR in the portfolio.• Action 2: Sell a particular stock and purchase an equivalent value of a newstock, which would cause the ratio of expected excess returns to portfoliobeta for all stocks in the portfolio to be equal.• Action 3: Sell a particular stock and purchase an equivalent value of a newstock, which would cause the portfolio betas of all stocks in the portfolio to be equal.• Action 4: Sell a particular stock and purchase an equivalent value of a newstock, which would significantly decrease the portfolio standard deviationwithout changing the average excess portfolio return.Which of the actions above would create an optimal portfolio?

Which of the following statements regarding the differences between Basel I, Basel II.5, and the Fundamental Review of the Trading Book (FRTB) for market risk capital calculations is incorrect?

Given the following three events, what is the proper order of the CCP loss waterfall?I. Nondefaulting member’s default fund contributions are exhausted.II. Defaulting member’s collateral and default fund contributions are exhausted.III. CCP taps an amount of its equity that enables them to function normally.