FRM FRM Market Risk

Question 1

What does Value at Risk (VaR) measure at a 95% confidence level over a 1-day horizon?

Accepted Answer

The maximum loss not exceeded with 95% probability over one day

Answer

The expected loss averaged over 95 trading days

Answer

The minimum gain expected with 95% probability

Answer

The average loss over the worst 5% of trading days

Question 2

Which of the following best describes Expected Shortfall (ES)?

Accepted Answer

The average of all losses beyond the VaR threshold

Answer

The maximum possible loss in any scenario

Answer

The median loss in the worst quartile

Answer

The VaR scaled by a confidence multiplier

Question 3

Under Basel III, what is the standard multiplier applied to the 10-day 99% VaR for market risk capital requirements?

Accepted Answer

3

Answer

1.5

Answer

2

Answer

4

Question 4

What is the primary limitation of historical simulation as a VaR method?

Accepted Answer

It assumes future market conditions mirror the historical window used

Answer

It requires normally distributed returns

Answer

It cannot account for non-linear instruments

Answer

It overstates losses in calm market periods

Question 5

A bond portfolio has a DV01 of $5,000. If interest rates rise by 10 basis points, what is the approximate dollar loss?

Accepted Answer

$50,000

Answer

$5,000

Answer

$500

Answer

$500,000

Question 6

Which Greek measures the rate of change of an option's delta with respect to the underlying asset price?

Accepted Answer

Gamma

Answer

Vega

Answer

Theta

Answer

Rho