100% Free GARP FRM-Part-2 Practice Test Questions and Answers 2026

A researcher at a national regulatory agency is examining the use of thestandardized ratings-based approach (SA) and the advanced internal ratingsbased(A-IRB) approach in determining credit risk capital. The researcherevaluates the implications of applying these approaches on two different banks,Global Bank and Resource Bank. Information about the credit exposures of the two banks is provided below:• Global Bank lends to large global corporations that have highly diversebusiness lines by providing sizable long-dated unsecured credit facilities.• Resource Bank lends to oil and gas producers in its region, most of which have small-scale operations.Which of the following is the most appropriate conclusion for the researcher to reach?

In an attempt to understand country risk, an analyst at Global Funds examines multiple sources of information to determine the truest measure of risk. She considers sovereign risk ratings, default risk spreads, and composite measures of risk. Which of the following sources relies on surveys of several hundred economists to measure sovereign risk?

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

A risk manager uses the past 480 months of correlation data from the Dow Jones Industrial Average (Dow) to estimate the long-run mean correlation of common stocks and the mean reversion rate. Based on this historical data, the long-run mean correlation of Dow stocks was 34%, and the regression output estimates the following regression relationship: Y = 0.262 − 0.77X. Suppose that in April 2014, the average monthly correlation for all Dow stocks was 33%. What is the estimated one-period autocorrelation for this time period based on the mean reversion rate estimated in the regression analysis?

Assuming a loan portfolio of L, a recovery rate of RR, and the percentage of losses on a portfolio less than V(T, X), which of the following formulas is used to estimate credit VaR?