FRM FRM 5

Question 1

The Net Stable Funding Ratio (NSFR) is designed to promote:

Accepted Answer

Stable funding over a one-year horizon

Answer

Short-term intraday liquidity

Answer

Higher trading leverage

Answer

Lower capital requirements

Question 2

In an interest rate term structure, a normal (upward-sloping) yield curve generally implies:

Accepted Answer

Higher yields for longer maturities

Answer

Expectations of falling short rates

Answer

Imminent recession only

Answer

Equal yields across maturities

Question 3

Which validation technique compares a model's predicted default rankings against realized defaults using a discriminatory power statistic?

Accepted Answer

Backtesting via the accuracy ratio / AUC

Answer

Net present value

Answer

Duration matching

Answer

Delta hedging

Question 4

A key advantage of central clearing through a CCP for derivatives is:

Accepted Answer

Multilateral netting and reduced bilateral counterparty risk

Answer

Elimination of all market risk

Answer

No need for any margin

Answer

Guaranteed profit on trades

Question 5

If two assets have a correlation of -1, a portfolio combining them can theoretically achieve:

Accepted Answer

Zero portfolio variance at the right weights

Answer

Maximum possible risk

Answer

Doubled volatility

Answer

Infinite return

Question 6

Which capital buffer under Basel III can be drawn down during periods of stress to absorb losses?

Accepted Answer

Capital conservation buffer

Answer

Minimum CET1 requirement

Answer

Leverage exposure measure

Answer

Risk-weighted asset floor

Question 7

The incremental risk charge (IRC) in the trading book primarily captures:

Accepted Answer

Default and migration risk of credit positions not in securitizations

Answer

Intraday operational losses

Answer

Foreign exchange settlement risk

Answer

Equity dividend risk