Free GARP FRM-Part-2 Exam Questions

A risk analyst is implementing an enterprise risk management system at a bank. During the process, the analyst takes an inventory of risks faced by the bank and categorizes these risks as market, credit, or operational risks. Which of the following observations of the bank’s data should be considered unexpected if compared to similar industry data?

Which of the following statements about expected shortfall estimates and coherent risk measures are true?

Which of the following features is least likely a benefit of collateralization?

In the context of arbitrage trades, if the CDS spread is significantly greater than the bond yield spread, what is the most appropriate action by the investor?

The head of the fixed-income department of a bank asks a risk analyst to review anoutstanding bond issued by Company GRN, a livestock producer. The bondcurrently trades at a spread of 250 bps over the risk-free interest rate and has arecovery rate of 75%. Senior management of the bank has expressed concernabout the slowdown in business activities in the livestock industry, which isexpected to last for the next 3 years. The analyst applies the constant hazard rateprocess in estimating default probability and assumes that, under a stressed marketscenario, the bond would trade at a spread of 480 bps over the risk-free interest ratecurve, and its recovery rate would decrease to 40%. Assuming the stress scenarioprevails, what would be the correct estimate of the probability that Company GRNwould not default on its bond over the next 3 years?