FRM FRM 2

Question 1

A portfolio has a one-day 99% VaR of $1 million. What does this figure most accurately represent?

Accepted Answer

The loss that will be exceeded on 1% of days

Answer

The maximum possible loss over one day

Answer

The average loss on the worst days

Answer

The guaranteed loss every day

Question 2

Which risk measure, unlike VaR, satisfies the coherence property of subadditivity in all cases?

Accepted Answer

Expected Shortfall (CVaR)

Answer

Standard deviation

Answer

Maximum drawdown

Answer

Notional exposure

Question 3

Under the Basel framework, which type of risk capital charge specifically addresses losses from inadequate internal processes, people, and systems?

Accepted Answer

Operational risk capital

Answer

Market risk capital

Answer

Credit risk capital

Answer

Liquidity coverage ratio

Question 4

A bond's duration is 6 and its convexity is 80. For a 1% (0.01) rise in yields, the convexity adjustment to the price change is approximately:

Accepted Answer

+0.40%

Answer

-0.40%

Answer

+6.00%

Answer

-6.00%

Question 5

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

Accepted Answer

Gamma

Answer

Theta

Answer

Vega

Answer

Rho

Question 6

In credit risk, the expected loss on an exposure is calculated as:

Accepted Answer

PD × LGD × EAD

Answer

PD + LGD + EAD

Answer

PD × EAD / LGD

Answer

LGD × maturity

Question 7

Which type of backtesting exception would most concern a risk manager validating a VaR model?

Accepted Answer

Exceptions occur far more frequently than the confidence level implies

Answer

Realized losses never exceed VaR

Answer

VaR equals zero on weekends

Answer

Profits exceed VaR