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
The Net Stable Funding Ratio (NSFR) is designed to promote:
Answer: Stable funding over a one-year horizon
The NSFR requires banks to maintain stable funding sources relative to assets over a one-year horizon.
In an interest rate term structure, a normal (upward-sloping) yield curve generally implies:
Answer: Higher yields for longer maturities
A normal yield curve shows longer maturities offering higher yields than shorter ones.
Which validation technique compares a model's predicted default rankings against realized defaults using a discriminatory power statistic?
Answer: Backtesting via the accuracy ratio / AUC
The accuracy ratio (Gini) or AUC measures how well a credit model discriminates defaulters from non-defaulters.
A key advantage of central clearing through a CCP for derivatives is:
Answer: Multilateral netting and reduced bilateral counterparty risk
A central counterparty enables multilateral netting and mutualizes counterparty risk, reducing bilateral exposures.
If two assets have a correlation of -1, a portfolio combining them can theoretically achieve:
Answer: Zero portfolio variance at the right weights
Perfectly negatively correlated assets can be weighted to fully offset, producing zero portfolio variance.
Which capital buffer under Basel III can be drawn down during periods of stress to absorb losses?
Answer: Capital conservation buffer
The capital conservation buffer is designed to be built in good times and drawn down to absorb losses in stress.
The incremental risk charge (IRC) in the trading book primarily captures:
Answer: Default and migration risk of credit positions not in securitizations
The IRC captures default and credit-migration risk for trading-book positions outside securitizations.