FRM Flashcards
7 cards from real FRM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 FRM flashcards as text
A swap's value to the fixed-rate payer increases when:
Answer: Interest rates rise
The fixed-rate payer benefits when rates rise because the floating payments they receive increase in value.
Which Basel III ratio is a non-risk-based backstop measure constraining a bank's leverage?
Answer: Leverage ratio
The leverage ratio compares Tier 1 capital to total non-risk-weighted exposures as a backstop.
The marginal VaR of a position measures:
Answer: The change in portfolio VaR from a small change in that position
Marginal VaR is the sensitivity of total portfolio VaR to a small increase in a given position.
Which of the following is an example of basis risk?
Answer: A hedge using a futures contract whose underlying differs slightly from the hedged asset
Basis risk arises when the hedging instrument and the hedged exposure do not move perfectly together.
Under a Gaussian copula approach to portfolio credit risk, what does the copula primarily model?
Answer: The dependence structure among defaults
A copula links marginal default distributions to capture the correlation/dependence structure between defaults.
An option's theta is typically negative for a long position because:
Answer: Time decay erodes the option's value as expiration nears
Theta reflects time decay, which reduces a long option's value as it approaches expiration.
Which of the following best characterizes model risk?
Answer: Risk of losses from incorrect or misused models
Model risk is the potential for loss arising from errors, wrong assumptions, or misuse of financial models.