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 03, 2026

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Question 1

The treasurer of a regional bank is concerned that the bank may not be properlycompensated for the services it provides to its depositors and asks a manager toassess a price for these services. The manager applies cost-plus pricing for alldepository services and uses the following data for pricing the automated tellermachine (ATM) service:• Operating expense per ATM visit: USD 0.25• Estimated overhead cost allocated per ATM visit: USD 0.35• Profit required per ATM visit: USD 0.05• The bank’s target return on capital: 15%What is the correct amount for the bank to charge per ATM visit according to the cost-plus pricing model?

A : D USD 0.74

B : B USD 0.65

C : A USD 0.30

D : C USD 0.70

Answer: B

Question 2

Due to lack of available investment opportunities in public markets, a pension fund decided to hire an investment consultant to assess the potential for investing in illiquid markets in the US. Which of the following characteristics of illiquid markets in the US should the consultant present to the pension managers?

A : During the 2008-2009 Financial Crisis, liquidity dried up in repo markets but not in commercial paper markets.

B : The traditional public, liquid markets of stocks and bonds are larger than the total wealth held in illiquid assets.

C : The share of illiquid assets in institutional portfolios has generally gone up in the past 2 decades.

D : Municipal bonds are usually more liquid than pinksheet over-the-counter equities.

Answer: C

Question 3

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

Question 4

The CRO of a regional bank expresses concern in a meeting of the risk team thatthe bank’s internal risk models are not adequately assessing potential randomextreme losses. A risk analyst asks if implementing a model based on extremevalue theory (EVT) would address the CRO’s concern. Which of the following iscorrect when applying EVT and examining distributions of losses exceeding a threshold value?

A : C To apply EVT, the underlying loss distribution must be either normal or lognormal.

B : value converges to a generalized Pareto distribution.

C : causes the reliability of the parameter estimates to increase.

D : to infinity, then the GEV essentially becomes a normal distribution.

Answer: B

Question 5

A junior risk analyst at a consulting firm is reviewing the operational arrangements of bilateral netting and central clearing of derivative trades. The analyst examines the following bilateral trades of three firms:• Firm 1’s exposure to Firm 2: AUD 90 million• Firm 2’s exposure to Firm 1: AUD 60 million• Firm 1’s exposure to Firm 3: AUD 12 million• Firm 3’s exposure to Firm 1: AUD 70 million• Firm 2’s exposure to Firm 3: AUD 57 million• Firm 3’s exposure to Firm 2: AUD 0 millionWhich of the following statements is correct?

A : Under bilateral netting, Firm 1’s net exposure is AUD 28 million.

B : Under bilateral netting, Firm 2’s net exposure is AUD 27 million.

C : Under central clearing, the CCP’s net exposure is AUD 28 million.

D : Under central clearing, Firm 3’s net exposure is AUD 0 million.

Answer: C

Page: 1 / 101

Total 503 Questions | Updated On: Apr 03, 2026

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