Financial Risk Manager (GARP) · FRM exam
FRM P2 Part II: mock exams and practice questions
312 original exam-style questions for FRM P2 Part II, with full timed mock exams in the real format and an explanation for every answer. Free for everyone until 31 January 2027.
- 312practice questions
- 6syllabus areas
- 4 hoursfull mock, like the real exam
FRM P2 exam format
4 hours, 80 four-option multiple-choice questions (computer-based). The pass mark is 70%.
| Section | Format | Marks |
|---|---|---|
| FRM Part II | 80 four-option multiple-choice questions | 80 |
| Total | 80 |
Syllabus areas covered
- Market Risk63 questions
- Credit Risk64 questions
- Operational Risk and Resilience64 questions
- Liquidity and Treasury Risk49 questions
- Risk Management and Investment Management48 questions
- Current Issues in Financial Markets24 questions
Try 3 free FRM P2 questions
Real Fincora questions, with the full explanation. Sign up free for the full bank and timed mocks.
Sample question 1 · Market Risk
Halvorsen Bank backtests its 99% one-day VaR model over the last 250 trading days and records 7 exceptions. Using Kupiec's proportion-of-failures (POF) likelihood ratio test at the 95% confidence level (chi-square critical value with one degree of freedom = 3.84), which statement is correct?
- A LR is approximately 5.50, but the model is not rejected because 5.50 is below 6.63
- B LR is approximately 3.01, so the model is not rejected
- C LR is approximately 2.86, so the model is not rejected
- D LR is approximately 5.50, so the model is rejected
Show the answer
Answer: D. Under H0 the exception probability is p = 0.01; observed rate = 7/250 = 0.028.
LR = -2 ln[(1 - p)^(T-N) p^N] + 2 ln[(1 - N/T)^(T-N) (N/T)^N]
= -2 ln[0.99^243 x 0.01^7] + 2 ln[0.972^243 x 0.028^7] = 5.50.
LR is chi-square with 1 degree of freedom under H0. Since 5.50 > 3.84, the hypothesis that the model has correct (1%) coverage is rejected at the 95% confidence level. (Expected exceptions were only 2.5.)
Sample question 2 · Credit Risk
A company's 3-year bonds trade at a credit spread of 180 basis points over the risk-free rate. The expected recovery rate is 40%. Assuming a constant hazard rate, what is the risk-neutral probability that the company defaults within 3 years?
- A 5.26%
- B 8.61%
- C 9.00%
- D 12.63%
Show the answer
Answer: B. Hazard rate lambda = spread / (1 - R) = 0.018 / 0.60 = 3.0% per year.
Survival to year 3 = e^(-0.03 x 3) = e^(-0.09) = 0.9139.
Cumulative default probability = 1 - 0.9139 = 8.61%.
Sample question 3 · Operational Risk and Resilience
Halvorsen Bank's business indicator (BI), calculated under the Basel III standardised approach for operational risk, is €42 billion. What is the bank's business indicator component (BIC)?
- A €6.66 billion
- B €7.56 billion
- C €6.63 billion
- D €6.30 billion
Show the answer
Answer: C. The BIC uses marginal coefficients, like income tax bands: 12% on BI up to €1bn, 15% on BI from €1bn to €30bn, and 18% on BI above €30bn.
BIC = 1 × 12% + (30 − 1) × 15% + (42 − 30) × 18% = 0.12 + 4.35 + 2.16 = €6.63 billion.
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